SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year Commission File Number 1-12278
ended December 31, 1998
URBAN SHOPPING CENTERS, INC.
(Exact name of registrant as specified in its charter)
Maryland 36-3886885
(State of incorporation) (I.R.S. Employer
Identification No.)
900 North Michigan Avenue, Suite 1500
Chicago, Illinois 60611
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 915-2000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ------------------- ------------------------
Common Stock, $.01 Par Value New York Stock Exchange
Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K
<PAGE>
--------------------
As of March 23, 1999, the aggregate market value of the registrant's Common
Stock held by non-affiliates of the registrant was approximately
$445,191,000, based upon the closing price ($28-5/8) on the New York Stock
Exchange composite tape on such date.
As of March 23, 1999, there were outstanding 17,487,684 shares of the
registrant's Common Stock and 407,935 shares of the registrant's Unit
Voting Common Stock.
Portions of the registrant's 1998 annual report to shareholders are
incorporated by reference into Parts I and II. Portions of the proxy
statement for the registrant's annual shareholders meeting to be held in
1999 are incorporated by reference into Part III.
<PAGE>
TABLE OF CONTENTS
Page
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . 18
Item 4. Submission of Matters to a Vote of Security Holders. . . . . 18
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters. . . . . . . . . . . . . . . . . . . . . 18
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . 18
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . 18
Item 7A. Quantitative and Qualitative Disclosures about
Market Rate. . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 8. Financial Statements and Supplementary Data. . . . . . . . . 19
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure. . . . . . . . . . . . . 19
PART III
Item 10. Directors and Executive Officers of
the Registrant . . . . . . . . . . . . . . . . . . . . . . . 19
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . 19
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . 19
Item 13. Certain Relationships and Related Transactions . . . . . . . 19
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . 20
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
<PAGE>
PART I
ITEM 1. BUSINESS
THE COMPANY
Urban Shopping Centers, Inc. (the "Company") is in the business of
owning, acquiring, managing, leasing, developing and redeveloping
super-regional and regional malls located throughout the United States.
Substantially all of the Company's assets and interests in investment
properties (the "Properties") are held by, and substantially all of its
operations are conducted through, Urban Shopping Centers, L.P. (the
"Operating Partnership").
On December 29, 1998, in connection with the Company's acquisition of
a 50% equity interest in Woodland Hills Mall, in Tulsa, Oklahoma, the
Company issued $25,000,000 in cumulative convertible redeemable preferred
stock ("Series B Preferred Stock") with a liquidation preference of $32.32
per share. Quarterly dividends on the Series B Preferred Stock are equal
to the greater of (i) $0.525 per share or (ii) the quarterly dividend then
payable on the shares of common stock into which the Series B Preferred
Stock is convertible. The Series B Preferred Stock is convertible into
common stock, at the option of the holder, at a conversion price of $32.32
per share (subject to antidilution adjustments) at anytime after September
1999. After six years, the Series B Preferred Stock may be redeemed, at
the option of the Company, for cash at a redemption price of $32.32 per
share.
On November 13, 1997, in connection with the Company's acquisitions of
Fox Valley Center and Hawthorn Center, the Company issued $100,000,000 in
cumulative convertible redeemable preferred stock ("Series A Preferred
Stock") with a liquidation preference of $33.34 per share. Quarterly
dividends on the Series A Preferred Stock are equal to the greater of (i)
$0.50 per share or (ii) the quarterly dividend then payable on the shares
of common stock into which the Series A Preferred Stock is convertible.
The Series A Preferred Stock is convertible into common stock, at the
option of the holder, at a conversion price of $33.34 per share (subject to
antidilution adjustments) at anytime after August 1998. After six years,
the Series A Preferred Stock may be redeemed, at the option of the Company,
for cash at a redemption price of $33.34 per share.
As of December 31, 1998, the Company, which is the sole general
partner of the Operating Partnership, owns approximately 67% of the common
units ("Units") in the Operating Partnership; JMB Realty Corporation ("JMB
Realty") and certain of its affiliates ("JMB Partners") and certain other
parties own limited partnership interests in the Operating Partnership
representing approximately 33% of the Units and also own $28,000,000 of
convertible preferred units. The convertible preferred units have a
liquidation preference of $27.50 per unit, a distribution rate of 7%, a
redemption price of $27.50 per unit and a conversion price of $27.50 per
unit to common units which in turn are convertible to common stock. After
seven years, the convertible preferred units may be redeemed at the option
of the Company for cash or may be converted at the option of the holder
into common units. Each Unit may be exchanged for one share of common
stock. In general, for financial reporting purposes, the net profits and
losses of the Operating Partnership are allocated to the general and
limited partners in accordance with their percentage ownership. The
Company operates as a real estate investment trust ("REIT") for Federal
income tax purposes.
The Company has a preferred stock investment in Urban Retail
Properties Co. (the "Management Company") and is generally entitled to 95%
of the distributions, profits and losses from the Management Company's
management, leasing and development business and 5% of the net
distributions, profits and losses from certain land parcels owned by the
Management Company.
<PAGE>
THE REGIONAL MALL BUSINESS
There are several types of retail shopping centers, varying primarily
by size and marketing strategy. Retail shopping centers range from
neighborhood centers of generally less than 100,000 square feet of GLA
("community centers") to regional and super-regional shopping centers.
Retail shopping centers in excess of 400,000 square feet of GLA are
generally referred to as "regional" shopping centers, while those centers
having in excess of 800,000 square feet of GLA are generally referred to as
"super-regional" shopping centers. In this report, the term "regional
malls" refers to both regional and super-regional shopping centers and the
term "Regional Malls" refers to the Company's fifteen operating regional
malls at December 31, 1998. The term "Community Centers" refers to the
Company's three operating community centers and the term "Properties"
refers to the Regional Malls and the Community Centers. The term "GLA"
refers to gross retail space, including anchors and mall tenant areas, and
the term "Mall GLA" refers to gross retail space, excluding anchors. The
term "anchor" refers to a department store or other large retail store.
The term "mall tenants" refers to stores (other than anchors) that are
typically specialty retailers and lease space in shopping centers.
BUSINESS OF THE COMPANY
A discussion of the business of the Company is hereby incorporated by
reference to the discussion appearing on pages 1 through 10 of the
Company's 1998 annual report to shareholders (the "Annual Report") under
the captions "To Our Shareholders," "Development," "Asset Management,"
"Leasing," and "Property Management."
THE MANAGEMENT COMPANY BUSINESS
A discussion of the Management Company business is hereby incorporated
by reference to the discussion appearing on pages 2 and 10 of the Annual
Report under the captions "To Our Shareholders - Third-party business," and
"Property Management."
ANCHORS
Regional malls (and many smaller centers) usually contain one or more
anchors. Anchors, which include traditional department stores, general
merchandise stores, large fashion specialty stores, value oriented
specialty stores and discount stores, usually inventory a broad range of
products that appeal to many shoppers. Anchors are one of the most
important factors in differentiating among regional malls.
Anchors either own their own stores and parking areas or lease their
stores from the owner of the mall. Although the rent and other charges paid
by anchors is usually much less (on a per square foot basis) than the rent
paid by tenants occupying Mall GLA, their presence typically attracts many
shoppers and enhances the value of a shopping center.
Anchors in the Regional Malls occupy approximately 9.7 million square
feet of GLA (approximately 61.4% of total GLA of the Regional Malls) and
accounted for approximately 9.4% of total shopping center revenues of the
Regional Malls in 1998. The table on the following page summarizes the
square footage owned and leased by anchors in the Regional Malls at
December 31, 1998:
<PAGE>
<TABLE>
<CAPTION>
ANCHOR ANCHOR
NUMBER GLA GLA PERCENT
OF OWNED OWNED TOTAL OF
ANCHOR BY BY ANCHOR TOTAL
PARENT/ANCHOR STORES ANCHOR COMPANY GLA GLA
- -------------- ------ --------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
SEARS, ROEBUCK AND CO.
Sears . . . . . . . . . . . . . 9 1,504,368 246,877 1,751,245 11.0%
DAYTON HUDSON
CORPORATION
Marshall Field's. . . . . . . . 5 1,277,002 288,802 1,565,804 9.8%
J.C. PENNEY CO., INC.
JCPenney. . . . . . . . . . . . 9 1,063,880 266,960 1,330,840 8.4%
FEDERATED DEPARTMENT
STORES, INC.
Burdines. . . . . . . . . . . . 5 631,128 -- 631,128 4.0%
Macy's. . . . . . . . . . . . . 1 225,000 -- 225,000 1.4%
Bloomingdale's. . . . . . . . . 1 -- 200,000 200,000 1.3%
Goldsmith's . . . . . . . . . . 1 180,000 -- 180,000 1.1%
-------- --------- --------- -------- --------
Total. . . . . . . . . . . . 8 1,036,128 200,000 1,236,128 7.8%
DILLARD DEPARTMENT
STORES, INC.
Dillard's . . . . . . . . . . . 7 895,259 240,925 1,136,184 7.1%
THE MAY DEPARTMENT
STORES COMPANY
Foley's . . . . . . . . . . . . 2 312,820 -- 312,820 1.9%
Lord & Taylor . . . . . . . . . 3 -- 343,867 343,867 2.2%
Robinsons-May . . . . . . . . . 3 -- 425,498 425,498 2.7%
-------- --------- --------- --------- --------
Total. . . . . . . . . . . 8 312,820 769,365 1,082,185 6.8%
NORDSTROM, INC.
Nordstrom . . . . . . . . . . . 4 532,036 350,500 882,536 5.5%
PROFFIT'S INC.
Carson Pirie Scott. . . . . . . 2 219,003 -- 219,003 1.4%
Saks Fifth Avenue . . . . . . . 2 91,634 104,469 196,103 1.2%
-------- --------- --------- --------- --------
4 310,637 104,469 415,106 2.6%
<PAGE>
ANCHOR ANCHOR
NUMBER GLA GLA PERCENT
OF OWNED OWNED TOTAL OF
ANCHOR BY BY ANCHOR TOTAL
PARENT/ANCHOR STORES ANCHOR COMPANY GLA GLA
- -------------- ------ --------- ------- --------- -------
THE NEIMAN MARCUS GROUP
Neiman Marcus . . . . . . . . . 2 112,099 104,332 216,431 1.4%
MONTGOMERY WARD & CO.
Montgomery Ward . . . . . . . . 1 -- 163,893 163,893 1.0%
-------- --------- --------- --------- --------
Totals . . . . . . . . . . . 57 7,044,229 2,736,123 9,780,352 61.4%
======== ========= ========= ========= ========
</TABLE>
<PAGE>
MAJOR TENANTS
Non-anchor tenants owned by major national retail chains lease a
considerable amount of space in the Regional Malls. In addition to
enhancing a regional mall's popularity with shoppers, tenants affiliated
with national chains help regional malls lease space by attracting many
local and regional tenants.
Ten major national retail chains which had stores open and operating
at December 31, 1998 accounted for 28.7% of the Mall GLA in the Regional
Malls at December 31, 1998 and 25.4% of 1998 minimum rent of the Regional
Malls. The largest of these chains, in terms of square footage and rent
received, is The Limited, Inc., which, through all of its subsidiaries,
accounted for 10.6% of the Mall GLA in the Regional Malls at December 31,
1998 and 8.0% of 1998 minimum rent of the Regional Malls. No other chain
accounted for more than 3.7% of the Mall GLA in the Regional Malls at
December 31, 1998 or 3.8% of 1998 minimum rent of the Regional Malls.
The following table summarizes the square feet leased by the ten major
national retail chains in the Regional Malls at December 31, 1998:
<PAGE>
<TABLE>
<CAPTION>
COMPANY'S
TOTAL PRO RATA SHARE
---------------------------------------- ----------------------------
PERCENT PERCENT
NUMBER OF OF
OF STORE MALL STORE MALL
PARENT/STORE STORES GLA GLA GLA GLA
- ------------ ------ --------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
THE LIMITED, INC.
Express . . . . . . . . 14 194,395 3.2% 160,290 3.3%
Lane Bryant . . . . . . 11 76,580 1.3% 61,423 1.2%
Lerner New York . . . . 11 115,091 1.8% 90,427 1.8%
Limited . . . . . . . . 14 172,702 2.8% 143,035 2.9%
Limited Too . . . . . . 7 28,852 .4% 24,525 .5%
Structure . . . . . . . 10 65,996 1.1% 47,919 1.0%
-------- ---------- -------- ---------- --------
Total. . . . . . 67 653,616 10.6% 527,619 10.7%
THE GAP, INC.
Banana Republic . . . . 8 60,405 1.0% 47,618 1.0%
Baby Gap. . . . . . . . 3 6,767 .1% 4,651 .1%
Gap . . . . . . . . . . 10 75,774 1.2% 45,392 .9%
Gap & GapKids . . . . . 5 50,802 .8% 49,213 1.0%
GapKids . . . . . . . . 8 34,003 .6% 24,774 .5%
-------- ---------- -------- ---------- --------
Total. . . . . . 34 227,751 3.7% 171,648 3.5%
VENATOR GROUP, INC.
Afterthoughts . . . . . 3 2,575 .1% 2,343 0%
Champs Sports . . . . . 8 42,153 .7% 28,704 .6%
Foot Locker . . . . . . 12 61,616 1.0% 50,604 1.0%
Kids Foot Locker. . . . 4 7,509 .1% 5,874 .1%
Kinney (1). . . . . . . 5 15,138 .3% 11,163 .2%
Lady Foot Locker. . . . 10 19,187 .3% 13,253 .3%
Northern Reflec-
tions. . . . . . . . . 3 9,118 .2% 9,118 .2%
The San Francisco
Music Box Company . . 6 6,212 .1% 4,641 .1%
-------- ---------- -------- ---------- --------
Total. . . . . . 51 163,508 2.8% 125,700 2.5%
<PAGE>
COMPANY'S
TOTAL PRO RATA SHARE
---------------------------------------- ----------------------------
PERCENT PERCENT
NUMBER OF OF
OF STORE MALL STORE MALL
PARENT/STORE STORES GLA GLA GLA GLA
- ------------ ------ --------- ------- --------- -------
SPIEGEL, INC.
Eddie Bauer . . . . . . 11 125,264 2.1% 113,523 2.3%
INTIMATE BRANDS, INC.
Bath & Body Works . . . 6 18,628 .3% 14,704 .3%
Victoria's Secret . . . 15 106,442 1.7% 78,145 1.6%
-------- ---------- -------- ---------- --------
Total. . . . . . 21 125,070 2.0% 92,849 1.9%
ABERCROMBIE & FITCH,
INC.
Abercrombie & Fitch . . 10 116,998 1.9% 97,777 2.0%
BARNES & NOBLE, INC.
B. Dalton Bookseller. . 3 16,854 .3% 8,797 .2%
Barnes & Noble. . . . . 3 85,341 1.4% 85,341 1.7%
Software Etc. . . . . . 2 2,873 0% 2,060 0%
-------- ---------- -------- ---------- --------
Total. . . . . . 8 105,068 1.7% 96,198 1.9%
CRATE & BARREL, INC.
Crate & Barrel. . . . . 5 86,067 1.4% 80,058 1.6%
CASUAL CORNER GROUP,
INC.
Casual Corner . . . . . 11 59,470 1.0% 47,994 1.0%
Petite Sophisticate . . 6 17,156 .3% 13,221 .3%
-------- ---------- -------- ---------- --------
Total. . . . . . 17 76,626 1.3% 61,215 1.3%
WILLIAMS-SONOMA, INC.
Hold Everything . . . . 1 2,987 0% 2,987 0%
Pottery Barn. . . . . . 3 47,905 .8% 47,905 1.0%
Williams Sonoma . . . . 5 25,290 .4% 18,298 .4%
-------- ---------- -------- ---------- --------
Total. . . . . . 9 76,182 1.2% 69,190 1.4%
-------- ---------- -------- ---------- --------
Totals . . . . . . . . . 233 1,763,367 28.7% 1,439,916 29.1%
======== ========== ======== ========== ========
<FN>
(1) Stores closed in January 1999.
</TABLE>
<PAGE>
ENVIRONMENTAL MATTERS
The Properties have been subjected to varying degrees of environmental
assessment. Where formal environmental studies have been performed, the
purpose of such studies has been to identify existing or potential
environmental hazards and to seek cost effective remedies. All of the
Properties have been the subject of Phase I environmental assessments, each
of which either was conducted or updated since 1989. None of the
environmental assessments has revealed, nor is the Company aware of, any
environmental liability (including asbestos-related liability) that the
Company believes would have a material adverse effect on the Company's
business, assets or results of operations. However, no assurances can be
given that environmental liabilities will not arise in the future that
could have a material adverse impact on the financial condition or
operations of the Company. There can be no assurance that there are no
existing conditions on the Properties which have not been identified by the
limited environmental assessments which have been conducted to date.
EMPLOYEES
At December 31, 1998, the Company, the Operating Partnership and the
Management Company employed a total of 1,705 persons. The Management
Company employs substantially all of the professional employees that are
currently engaged in the management, leasing and development businesses,
and certain of the professionals engaged in asset management and
administration.
COMPETITION
All of the Properties are located in developed retail and commercial
areas. There may be other neighborhood and community shopping centers
within a five-mile radius of each of the Community Centers. In addition,
with respect to most of the Regional Malls, there are one or more regional
malls within a fifteen-mile radius. Certain of the Regional Malls are
located near, and may compete with, certain regional malls owned by third
parties managed by the Management Company or owned by JMB Partners and
certain other parties or their affiliates; in addition, certain retailers
are contractually restricted from operating at competing malls.
INFLATION
Inflation has remained relatively low during the past three years and
has not had a significant impact on the Company. Substantially all of the
tenants' leases contain provisions designed to protect the Company from the
impact of inflation. Such provisions include clauses enabling the Company
to receive percentage rentals based on tenants' gross sales, which
generally increase as prices rise, and/or escalation clauses, which
generally increase rental rates periodically during the terms of the
leases. In addition, certain of the leases are for terms of less than 10
years which may enable the Company to replace existing leases with new
leases at higher base and/or percentage rentals if rents of the existing
leases are below then-existing market rates. Substantially all of the
leases require the tenants to pay their share of operating expenses,
including common area maintenance, real estate taxes and insurance, thereby
reducing the Company's exposure to increases in costs and operating
expenses resulting from inflation. However, inflation may have a negative
impact on some of the Company's other operating expenses. Interest and
general and administrative expenses may be adversely affected by inflation
as these specified costs could increase at a rate higher than rents. Also,
for tenant leases with stated periodic rent increases, inflation may have a
negative effect as the stated rent increases in these leases could be lower
than the increase in inflation at any given time.
<PAGE>
<TABLE>
ITEM 2. PROPERTIES
The following table sets forth certain information relating to the Properties at December 31, 1998.
<CAPTION>
OWNERSHIP
BY THE
COMPANY FEE,
AND GROUND
YEAR OPERATING OR AIR
PROPERTY/ TOTAL GLA/ OPENED/ PARTNER- RIGHTS
LOCATION(1)(2) ANCHORS MALL GLA (3) EXPANDED SHIP LEASE
- -------------- ------- ------------ -------- --------- --------
<S> <C> <C> <C> <C> <C>
REGIONAL MALLS:
OAKBROOK CENTER Lord & Taylor 2,014,962/ 1962/ 100.0% Ground
Oak Brook, IL Marshall Field's 829,384 1973, Lease(4)
(Chicago Neiman Marcus 1981,
metropolitan Nordstrom 1987,
area) Saks Fifth 1991
Avenue
Sears
OLD ORCHARD Bloomingdale's 1,711,821/ 1956/ 100.0% Fee
CENTER Lord & Taylor 648,104 1994
Skokie, IL Marshall Field's
(Chicago Nordstrom
metropolitan Saks Fifth Avenue
area)
FOX VALLEY Carson Pirie 1,432,392/ 1975/ 100.0% Fee
CENTER Scott 563,907 1988,
Aurora, IL JCPenney 1996
(Chicago Marshall Field's
metropolitan Sears
area)
HAWTHORN Carson Pirie 1,233,761/ 1972/ 100.0% Fee
CENTER Scott 504,380 1989,
Vernon Hills, IL JCPenney 1994,
(Chicago Marshall Field's 1997
metropolitan Sears
area)
<PAGE>
OWNERSHIP
BY THE
COMPANY FEE,
AND GROUND
YEAR OPERATING OR AIR
PROPERTY/ TOTAL GLA/ OPENED/ PARTNER- RIGHTS
LOCATION(1)(2) ANCHORS MALL GLA (3) EXPANDED SHIP LEASE
- -------------- ------- ------------ -------- --------- --------
MAINPLACE Macy's 1,116,385/ 1987/ 100.0% Fee
Santa Ana, CA Nordstrom 455,885 1991
(Los Angeles/ Robinsons-May
Orange County (2 stores)
metropolitan
area)
CITRUS PARK Burdines 1,099,420/ 1999 100.0% Fee
TOWN CENTER (5) Dillard's 453,826
Tampa, FL JCPenney
Sears
GALLERIA AT JCPenney 1,100,000/ Scheduled 100.0% Fee
ROSEVILLE (6) Macy's 472,000 fall of
Roseville, CA Nordstrom 2000
(Sacramento Sears
metropolitan
area)
WOODLAND HILLS Dillard's 1,093,326/ 1976/ 50.0% Fee
MALL (7) Foley's 383,879 1992,
Tulsa, OK JCPenney 1995
Sears
WOLFCHASE Dillard's 1,086,622/ 1997 100.0% Fee
GALLERIA Goldsmith's 389,286
Memphis, TN JCPenney
Sears
PENN SQUARE Dillard's 1,074,816/ 1960/ 100.0% Ground
MALL (2 stores) 384,998 1981, Lease(8)
Oklahoma City, Foley's 1988,
OK JCPenney 1995
Montgomery Ward
BRANDON Burdines 980,431/ 1995 100.0% Fee
TOWNCENTER Dillard's 360,716
Brandon, FL JCPenney
(Tampa Sears
metropolitan
area)
<PAGE>
OWNERSHIP
BY THE
COMPANY FEE,
AND GROUND
YEAR OPERATING OR AIR
PROPERTY/ TOTAL GLA/ OPENED/ PARTNER- RIGHTS
LOCATION(1)(2) ANCHORS MALL GLA (3) EXPANDED SHIP LEASE
- -------------- ------- ------------ -------- --------- --------
MIAMI Burdines 973,280/ 1982/ 40.0% Fee
INTERNATIONAL (2 stores) 289,972 1992
MALL Dillard's
Miami, FL JCPenney
Sears
CORAL SQUARE Burdines 941,473/ 1984/ 50.0% Fee
MALL (2 stores) 293,329 1989
Coral Springs, Dillard's
FL JCPenney
(Miami/Fort Sears
Lauderdale
metropolitan
area)
WATER TOWER Lord & Taylor 727,497/ 1976/ 55.0% Fee
PLACE Marshall Field's 311,825 1983,
Chicago, IL 1991
VALENCIA JCPenney 675,405/ 1992 25.0% Ground
TOWN CENTER Robinsons-May 282,486 (9) Lease(10)
Valencia, CA Sears
(Los Angeles
metropolitan
area)
SAN FRANCISCO Nordstrom 495,280/ 1988 50.0% Ground
SHOPPING 183,280 Lease(11)
CENTRE
San Francisco, CA
COPLEY PLACE Neiman Marcus 368,681/ 1984 33.33% Air
Boston, MA 264,349 Rights
Lease(12)
------------
TOTAL REGIONAL MALLS 17 18,125,552/
7,071,606
------------
<PAGE>
OWNERSHIP
BY THE
COMPANY FEE,
AND GROUND
YEAR OPERATING OR AIR
PROPERTY/ TOTAL GLA/ OPENED/ PARTNER- RIGHTS
LOCATION(1)(2) ANCHORS MALL GLA (3) EXPANDED SHIP LEASE
- -------------- ------- ------------ -------- --------- --------
COMMUNITY
CENTERS:
THE PLAZA AT CITRUS PARK 350,000 Scheduled 100.0% Fee
PARK TOWN (13) beginning
Tampa, FL fall
of 1999
THE PLAZA AT Service 243,035/ 1994 100.0% Fee
BRANDON Merchandise 89,185
TOWNCENTER Target
Brandon, FL
(Tampa
metropolitan
area)
SERVICE Circuit City 164,932/ 1988/ 100.0% Fee
MERCHANDISE Service 76,761 1997
PLAZA Merchandise
Columbus, OH
NEW YORK Kohl's 115,685/ 1989 100.0% Fee
SQUARE OfficeMax 16,760
Aurora, IL
(Chicago
metropolitan
area)
-------------
TOTAL COMMUNITY CENTERS 4 873,652/
182,706
-------------
-------------
TOTAL PROPERTIES 21 18,999,204/
7,254,312
=============
<PAGE>
<FN>
- -----------------------
(1) In those cases where a Property's location is identified with a larger metropolitan area, the metropolitan area
is identified in parentheses.
(2) Reference is made to Notes 4 and 6 of Notes to Consolidated Financial Statements and to "Management's
Discussion and Analysis of Financial Condition and Results of Operations" included in the Annual Report which are
hereby incorporated by reference and to the Schedule III filed with this report for the current outstanding principal
balance and a description of the long-term mortgage indebtedness secured by the Company's investment properties.
(3) Excludes office components of Water Tower Place (93,841 square feet), Oakbrook Center (239,704 square feet),
Old Orchard Center (59,366 square feet) and Copley Place (845,323). Excluding outparcel components of Brandon
TownCenter (Bed Bath & Beyond - 40,000 square feet), Wolfchase Galleria (Bed Bath & Beyond - 40,000 square feet) and
Old Orchard Center (First American Bank - 24,000 square feet).
(4) The Oakbrook Center ground lease expires in December 2040 and provides for renewal options for an additional 49
years as more fully discussed below.
(5) Citrus Park Town Center opened on March 3, 1999.
(6) Galleria at Roseville is currently under construction and scheduled to open in fall of 2000.
(7) On December 21, 1998, the Company acquired a 50% equity interest in Woodland Hills Mall. See Note 3 of Notes
to Consolidated Financial Statements in the Annual Report which is hereby incorporated by reference.
(8) A substantial portion of Penn Square Mall is on land subject to a ground lease expiring in 2060. See Note 7 of
Notes to Consolidated Financial Statements in the Annual Report which is hereby incorporated by reference.
(9) Subordinated to unaffiliated venture partner's return of capital plus a return thereon.
(10) The Valencia Town Center ground lease expires in December 2022. The partnership (in which the Operating
Partnership is a limited partner) has an option to purchase the fee interest at any time at a predetermined price.
(11) The San Francisco Shopping Centre ground lease expires in June 2043 and provides for one 15-year renewal
option.
(12) Copley Place is subject to an air rights lease expiring in December 2077.
(13) The Plaza at Citrus Park Town Center is currently under construction and scheduled to open beginning in the
fall of 1999.
</TABLE>
<PAGE>
The following two tables set forth certain rental information with
respect to the Company's operating properties (including the Company's
unconsolidated investment properties):
CONTRACTUAL STEPS
In certain cases, tenant leases contain provisions for periodic
increases in the minimum rental rate. These increases do not necessarily
result in increased funds available for distribution of a corresponding
amount. The amount of the increase is mitigated by possible changes in a
tenant's percentage rent breakpoint or amount, lease expirations and
terminations and the Company's ownership interest in a property. The table
below shows contractual rent steps for the years 1999 through 2003 for the
Properties in total and for the Company's pro rata share of the Properties
(based on the Company's percentage ownership in each property):
CONTRACTUAL STEPS COMPANY'S
(in thousands of dollars) TOTAL PRO RATA SHARE
- ------------------------- ------- --------------
1999. . . . . . . . . . . . . . $ 1,998 $ 1,683
2000. . . . . . . . . . . . . . 2,324 1,649
2001. . . . . . . . . . . . . . 1,966 1,474
2002. . . . . . . . . . . . . . 1,942 1,536
2003. . . . . . . . . . . . . . 1,329 1,186
LEASE EXPIRATIONS
The table below shows the square footage of lease expirations and the
average rent per square foot of the expirations for the Company's retail
tenants (excluding anchors, movie theaters and temporary tenants) for the
years 1999 through 2003 for the Properties in total and for the Company's
pro rata share of the Properties (based on the Company's percentage
ownership in each property):
TOTAL COMPANY'S PRO RATA SHARE
--------------------------- ---------------------------
EXPIRATIONS AVERAGE EXPIRATIONS AVERAGE
YEAR (S.F.) RENT/S.F. (S.F.) RENT/S.F.
- ---- ----------- ---------- ----------- ----------
1999 . . . . . 253,852 $ 27.98 201,846 $ 25.79
2000 . . . . . 279,364 29.46 226,245 27.73
2001 . . . . . 273,195 35.36 234,935 33.40
2002 . . . . . 364,388 32.04 250,906 29.39
2003 . . . . . 381,850 31.82 290,083 29.82
<PAGE>
<TABLE>
FINANCIAL INFORMATION
The table below shows funds from operations (FFO) and funds available for distribution (FAD) for the Company for
the last five years, 1994 through 1998:
($000's omitted, except share
and per share amounts)
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Basic FFO. . . . . . . . . . . . . . . . . . $ 83,217 $ 70,630 $ 53,988 $ 50,285 $ 44,593
========== ========== ========== ========== ==========
Diluted FFO. . . . . . . . . . . . . . . . . $ 91,972 $ 73,596 $ 54,063 $ 50,285 $ 44,593
========== ========== ========== ========== ==========
Basic FAD. . . . . . . . . . . . . . . . . . $ 83,546 $ 69,364 $ 52,711 $ 46,697 $ 42,276
========== ========== ========== ========== ==========
Diluted FAD. . . . . . . . . . . . . . . . . $ 92,301 $ 72,330 $ 52,786 $ 46,697 $ 42,276
========== ========== ========== ========== ==========
Basic weighted average common shares
and common units outstanding . . . . . . . 26,529,664 25,367,282 21,440,480 21,050,426 20,981,460
========== ========== ========== ========== ==========
Diluted weighted average shares
and units outstanding. . . . . . . . . . . 30,952,162 27,100,075 21,549,568 21,050,426 20,981,460
========== ========== ========== ========== ==========
Basic FFO/common share and common unit . . . $ 3.14 $ 2.78 $ 2.52 $ 2.39 $ 2.13
========== ========== ========== ========== ==========
Diluted FFO/share and unit . . . . . . . . . $ 2.97 $ 2.72 $ 2.51 $ 2.39 $ 2.13
========== ========== ========== ========== ==========
Basic FAD/common share and common unit . . . $ 3.15 $ 2.73 $ 2.46 $ 2.22 $ 2.01
========== ========== ========== ========== ==========
Diluted FAD/share and unit . . . . . . . . . $ 2.98 $ 2.67 $ 2.45 $ 2.22 $ 2.01
========== ========== ========== ========== ==========
<FN>
FFO and FAD should not be considered as an alternative to net income or any other GAAP measurement of
performance as an indicator of operating performance or as an alternative to cash flows from operating, investing or
financing activities as a measure of liquidity.
</TABLE>
<PAGE>
<TABLE>
The table below shows funds from operations (FFO) and funds available for distribution (FAD) for the Company on
a quarterly basis for 1997 and 1998:
($000's omitted, except share
and per share amounts)
<CAPTION>
QUARTERS ENDED
-------------------------------------------------------------------------------------------
12/31/98 9/30/98 6/30/98 3/31/98 12/31/97 9/30/97 6/30/97 3/31/97
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Basic FFO. . . . . . $ 26,662 $ 19,844 $ 20,222 $ 16,489 $ 20,600 $ 18,940 $ 17,708 $ 13,382
========== ========== ========== ========== ========== ========== ========== ==========
Diluted FFO. . . . . $ 28,849 $ 22,018 $ 22,396 $ 18,709 $ 21,966 $ 19,495 $ 18,263 $ 13,872
========== ========== ========== ========== ========== ========== ========== ==========
Basic FAD. . . . . . $ 25,537 $ 20,003 $ 20,365 $ 17,641 $ 20,936 $ 17,910 $ 16,481 $ 14,037
========== ========== ========== ========== ========== ========== ========== ==========
Diluted FAD. . . . . $ 27,724 $ 22,177 $ 22,539 $ 19,861 $ 22,302 $ 18,465 $ 17,036 $ 14,527
========== ========== ========== ========== ========== ========== ========== ==========
Basic weighted
average common
shares and
common units
outstanding . . . . 26,566,700 26,526,533 26,524,505 26,500,221 26,437,419 25,829,715 24,623,409 24,552,791
========== ========== ========== ========== ========== ========== ========== ==========
Diluted weighted
average shares
and units
outstanding . . . . 30,999,063 30,920,809 30,913,029 30,885,331 29,406,326 27,154,045 25,900,208 25,844,660
========== ========== ========== ========== ========== ========== ========== ==========
Basic FFO/common
share and common
unit. . . . . . . . $ 1.00 $ 0.75 $ 0.76 $ 0.62 $ 0.78 $ 0.73 $ 0.72 $ 0.55
========== ========== ========== ========== ========== ========== ========== ==========
Diluted FFO/
share and unit. . . $ 0.93 $ 0.71 $ 0.72 $ 0.61 $ 0.75 $ 0.72 $ 0.71 $ 0.54
========== ========== ========== ========== ========== ========== ========== ==========
Basic FAD/common
share and common
unit. . . . . . . . $ 0.96 $ 0.75 $ 0.77 $ 0.67 $ 0.79 $ 0.69 $ 0.67 $ 0.57
========== ========== ========== ========== ========== ========== ========== ==========
Diluted FAD/
share and unit. . . $ 0.89 $ 0.72 $ 0.73 $ 0.64 $ 0.76 $ 0.68 $ 0.66 $ 0.56
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE>
OAKBROOK CENTER GROUND LEASE
The following is a description of the Oakbrook Center ground lease.
On December 31, 1990, Oak Brook Urban Venture (a consolidated venture)
sold the land underlying Oakbrook Center for $75,000,000 ("ground
sale-leaseback proceeds" or "Lessor Base Amount") and leased it back for a
period of 50 years with options to renew for an additional 49 years. For
financial reporting purposes, the ground sale-leaseback proceeds were
accounted for as a financing transaction. Minimum annual rent to the
ground lessor accrues at 5% of the Lessor Base Amount, a portion of which
may be deferred based on available cash flow (as defined) from Oakbrook
Center. Deferred amounts accrue interest at 5% per annum. In each of the
years 1998, 1997 and 1996, Oak Brook Urban Venture reported rent expense of
$3,750,000 of which payment of $2,150,000 has been deferred in 1998 and
$2,350,000 has been deferred in 1997 and 1996. Interest has been accrued
and deferred of approximately $1,143,000, $982,000 and $823,000 for 1998,
1997 and 1996, respectively, on the deferred balance. The total deferred
interest and ground lease rent included in the accompanying consolidated
balance sheet at December 31, 1998 is approximately $24,984,000.
The Oakbrook Ground Lease was amended, effective upon closing of the
Company's initial public offering, to escalate the minimum annual payment
from $1,200,000 to $1,800,000 for the period 1994 to 2000. Payment of the
portion of the annual rent of $3,750,000 in excess of the minimum annual
payment is deferred to the extent that the rental income is inadequate to
(i) pay all expenses (including debt service), (ii) provide an amount equal
to the excess of 5.5% of gross revenues over property management fees
actually paid to the property manager (currently 2.5% of gross revenues)
and (iii) allow the lessee to recover a 10% yield on its investment (as
defined) in Oakbrook Center (cumulative from the date of the amendment,
subject to certain limitations). So long as the lessee has recouped such
10% yield, the rental income in excess of expenses (including debt service
and minimum annual rental) is used to pay the deferred annual rental plus
yield thereon of 5%. Excess rental income remaining after payment of the
deferred annual rental plus the 5% yield will be used as follows: (i) the
lessee is entitled to retain $1,250,000 per annum cumulative plus a yield
thereon of 5% per annum and (ii) 50% of any remaining amount of rental
income will be paid to the lessor as participating rent and 50% will be
retained by the lessee.
No participating rent is owing upon the sale of the lessee's interest
in the Oakbrook Ground Lease, unless the lessee elects to cause the ground
lessor to join in the sale. If the lessee desires to sell its leasehold
interest, the ground lessor has a right of first refusal and (if it does
not elect to exercise the right of first refusal and purchase the lessee's
interest) a right to approve (in its reasonable discretion) the transferee.
If the lessee elects to cause the ground lessor to join in the sale, the
combined net proceeds (after payment of the debt) would be divided between
the ground lessor and lessee as follows: (i) the lessee would first be
entitled to recoup its investment (as defined) in the project, plus any
shortfalls in the 10% yield thereon (subject to certain limitations); (ii)
next, the ground lessor would be entitled to any deferred annual rental
plus a yield thereon of 5% per annum; (iii) next, the ground lessor would
be entitled to $75,000,000; (iv) next, the lessee would be entitled to
$25,000,000 plus any shortfalls in its 5% yield thereon (although the
amount described in this sentence may instead have to be paid over to the
ground lessor, to the extent that the ground lessor has not otherwise
received from all rent and its share of sale proceeds $75,000,000 plus a
10% internal rate of return thereon from the commencement of the term of
the ground lease, subject to a limitation based on what would be owing on
the 10% internal rate of return if calculated as of the 50th anniversary of
the lease); and (v) the balance is split 50% to the ground lessor and 50%
to the lessee.
<PAGE>
Pursuant to the Oakbrook Ground Lease, the lessor has the option,
commencing seventeen years (fourteen years under certain circumstances)
after the amendment of the Oakbrook Ground Lease, to put the property to
the lessee for cash or, at the option of the Company, Units or shares of
Common Stock, at a price based, in general, upon the ground rent for the
twelve calendar month period preceding the exercise of the put. In
calculating the price of the ground lease, the ground rent, as adjusted, is
capitalized at a rate not lower than 50 basis points (.5%) over the
dividend rate of the Company for twelve calendar months preceding the
exercise of the option (using the average price per share during the
twelve-month period). Several adjustments are made in calculating the
application of the cash flow to ground rent for purposes of the put,
including the following: (i) the ground lessor will be limited, as to rent
deferred from prior years, to 5% of the balance thereof, (ii) the lessee
will be limited to 10% of its investment and 10% of the cumulatively
deferred yield (instead of the full deferred amount), subject to various
limitations, (iii) as to the $1,250,000 per annum described above, the
lessee will be limited to $1,250,000 for the current year plus 5% of the
balance owing for previous years and (iv) capital expenditures and
principal amortization are excluded from the expenses used in calculating
the cash flow for purposes of determining the ground rent to capitalize.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are not subject to any pending
material legal proceedings. The Company and its subsidiaries are parties
to a variety of legal proceedings arising in the ordinary course of their
business. It is management's opinion that the ultimate resolution of these
matters will not have a material adverse impact on the financial condition,
results of operations or liquidity of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to the Company's shareholders during
the fourth quarter of 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information required by this item is hereby incorporated by
reference to the material appearing on pages 37 and 38 of the Annual Report
under the captions "Quarterly Financial Summary" and "Shareholder
Information."
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is hereby incorporated by
reference to the data appearing on page 37 of the Annual Report under the
caption "Selected Financial Data."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is hereby incorporated by
reference to the material appearing on pages 14 through 21 of the Annual
Report under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is hereby incorporated by
reference to the material appearing on pages 19 and 20 of the Annual Report
under the caption "Financial Market Risk Disclosure."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is hereby incorporated by
reference to the "Consolidated Balance Sheets," "Consolidated Statements of
Operations," "Consolidated Statements of Stockholders' Equity,"
"Consolidated Statements of Cash Flows," "Notes to Consolidated Financial
Statements," "Independent Auditors' Report" and "Quarterly Financial
Summary" appearing in the Annual Report on pages 22 through 37.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is hereby incorporated by
reference to the material appearing on pages 2 through 5 of the Company's
definitive proxy statement for the annual meeting of shareholders to be
held in 1999 (the "Proxy Statement"), under the captions "Election of
Directors" and "Management - Directors and Executive Officers" and on page
23 of the Proxy Statement under the caption "Section 16(a) Beneficial
Ownership Reporting Compliance."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is hereby incorporated by
reference to the material appearing on pages 6 through 12, 14 and 15 of
the Proxy Statement under the captions "Executive Compensation - Summary
Compensation Table," " - Aggregated Option Exercises in 1998 and Year-End
Option Values," " - Option Plan," " - Incentive Unit Program," " -
Incentive Compensation," " - 401 (k) Plan," " - Core Retirement Award
Program," " - Deferred Cash Compensation Plan," " - Compensation of
Directors," " - Employment Contracts, Termination of Employment and
Change-in-Control Arrangements", " - Compensation Committee Interlocks and
Insider Participation" and "Proposal 2 - Approval of Incentive Stock
Program."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is hereby incorporated by
reference to the material appearing on pages 21 through 23 of the Proxy
Statement under the caption "Security Ownership."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is hereby incorporated by
reference to the material appearing on pages 19 and 20 of the Proxy
Statement under the caption "Certain Relationships and Related
Transactions."
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements
The consolidated balance sheets as of December 31, 1998
and 1997 and the consolidated statements of operations, stockholders'
equity and cash flows for each of the years ended December 31, 1998, 1997
and 1996 together with related notes and the independent auditors' report
dated February 5, 1999, except as to note 12, which is as of March 1, 1999,
appearing on pages 22 through 36 of the 1998 annual report to shareholders,
which is filed as Exhibit 13.1 to this report.
(2) Financial Statement Schedule and Independent Auditors'
Report
Title Schedule
----- ---------
Consolidated Real Estate and
Accumulated Depreciation III
The independent auditors' report with respect to the
financial statement schedule is on page 21.
(3) Exhibits
See Exhibit Index, which is hereby incorporated herein by
reference.
(b) The following report on Form 8-K was filed during the fourth
quarter of 1998.
(i) The Registrant's report on Form 8-K (describing the
acquisition of Woodland Hills Mall) was filed on December 21, 1998 as an
Item 5. Other Events filing.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Urban Shopping Centers, Inc.:
Under date of February 5, 1999, except as to note 12, which is as of
March 1, 1999, we reported on the consolidated balance sheets of Urban
Shopping Centers, Inc. and consolidated partnerships (the Company) as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the years in
the three-year period ended December 31, 1998, as contained in the 1998
annual report to shareholders. These consolidated financial statements and
our report thereon are incorporated by reference in the annual report on
Form 10-K for the year 1998. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the
related financial statement schedule as listed in Part IV, Item 14(a)(2).
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth
therein.
KPMG LLP
Chicago, Illinois
February 5, 1999
<PAGE>
<TABLE>
SCHEDULE III
URBAN SHOPPING CENTERS, INC.
Consolidated Real Estate and Accumulated Depreciation
December 31, 1998
($000's omitted)
<CAPTION>
COSTS
SUBSEQUENT
INITIAL COST TO TO GROSS AMOUNT AT WHICH CARRIED
THE COMPANY ACQUISITION AT CLOSE OF PERIOD (B)
-------------------------- ------------- --------------------------------------
LAND AND
LAND AND BUILDINGS BUILDINGS LAND AND BUILDINGS
ENCUM- LEASEHOLD AND AND LEASEHOLD AND
DESCRIPTION BRANCE IMPROVEMENTS IMPROVEMENTS IMPROVEMENTS IMPROVEMENTS IMPROVEMENTS TOTAL (G)
- ----------- -------- ------------ ------------ ------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
RETAIL CENTERS:
Oak Brook,
IL (A)(C) . . . $140,000 49,324 232,063 16,750 49,324 248,813 298,137
Oklahoma City,
OK(A)(C). . . . 31,000 1,931 77,797 6,759 1,931 84,556 86,487
Santa Ana,
CA (A). . . . . 80,000 11,461 77,893 6,584 11,761 84,177 95,938
Brandon,
FL (A)(D)(E). . 56,800 3,362 27,158 71,230 3,121 98,629 101,750
Columbus,
OH (A)(D) . . . -- 2,418 9,617 2,666 2,418 12,283 14,701
Aurora,
IL (A)(D) . . . -- 398 2,282 478 398 2,760 3,158
Memphis,
TN (D)(F) . . . 78,999 8,938 79,659 6,877 8,938 86,536 95,474
Skokie, IL. . . . 166,287 24,000 236,931 9,819 24,000 246,750 270,750
Aurora, IL. . . . 85,528 20,124 114,036 14,199 20,124 128,235 148,359
Vernon Hills,
IL. . . . . . . 77,864 19,626 111,216 785 19,626 112,001 131,627
Roseville,
CA (G). . . . . -- 3,388 7,873 -- 3,388 7,873 11,261
Tampa, FL (H) . . 45,273 12,016 88,071 -- 12,016 88,071 100,087
-------- --------- --------- --------- --------- --------- ---------
Total. . . . . $761,751 156,986 1,064,596 136,147 157,045 1,200,684 1,357,729
======== ========= ========= ========= ========= ========= =========
</TABLE>
<PAGE>
<TABLE>
Consolidated Real Estate and Accumulated Depreciation - Continued
December 31, 1998
($000's omitted)
<CAPTION>
LIFE ON WHICH
DEPRECIATION
IN LATEST
STATEMENT OF
ACCUMULATED DATE OF DATE OPERATION
DESCRIPTION DEPRECIATION(H) CONSTRUCTION ACQUIRED IS COMPUTED
- ----------- ---------------- ------------ ---------- ---------------
<S> <C> <C> <C> <C>
RETAIL CENTERS:
(cont'd.)
Oak Brook, IL (A)(C). . . . . . (49,930) 1962 1962 5-30
Oklahoma City, OK (A)(C). . . . (31,510) 1960 1985 5-30
Santa Ana, CA (A) . . . . . . . (30,004) 1987 1984 5-30
Brandon, FL (A)(D)(E) . . . . . (15,846) 1995 1995 5-30
Columbus, OH (A)(D) . . . . . . (3,253) 1988 1988 2.5-30
Aurora, IL (A)(D) . . . . . . . (758) 1989 1989 30
Memphis, TN (D)(F). . . . . . . (7,096) 1997 1997 5-30
Skokie, IL. . . . . . . . . . . (16,805) 1956 1996 7-30
Aurora, IL. . . . . . . . . . . (4,398) 1975 1997 5-30
Vernon Hills, IL. . . . . . . . (4,245) 1972 1997 5-30
Roseville, CA (G) . . . . . . . -- Expected 2000 -- --
Tampa, FL (H). . . . . . . . . -- 1999 1999 --
----------
Total. . . . . . . . . . . . $ (163,845)
==========
</TABLE>
<PAGE>
Consolidated Real Estate and Accumulated Depreciation - Continued
December 31, 1998
($000's omitted)
- ------------
(A) The initial cost to the Company approximates historical cost at
October 14, 1993.
(B) The aggregate cost of real estate owned and the related accumulated
depreciation at December 31, 1998, for Federal income tax purposes was
approximately $1,165,000 and $129,000, respectively.
(C) Properties operated under ground leases; see Item 2 - Properties and
Note 7 of Notes to Consolidated Financial Statements in the Annual Report
which is hereby incorporated by reference.
(D) On July 26, 1995, the Company signed an agreement with a group of
lenders for the establishment of a $90,000 secured, revolving line of
credit which on November 25, 1998 was increased to $107,500. This line of
credit is secured by certain of the Company's retail centers located in
Brandon, FL, Columbus, OH, Memphis, TN and Aurora, IL. See Note 6 of Notes
to Consolidated Financial Statements in the Annual Report which is hereby
incorporated by reference.
(E) The Company owns approximately twenty-three acres of outparcel land
which is available for future sale or development.
(F) The Company owns approximately twenty-five acres of outparcel land
which is available for future sale or development.
(G) The Company acquired land in Roseville, California on June 24, 1997.
This land is the site of the Company's latest regional mall development.
(H) Citrus Park Town Center opened on March 3, 1999. The Company owns
approximately twelve acres of outparcel land which is available for future
sale or development.
(I) Reconciliation of real estate owned:
1998 1997 1996
---------- ---------- ----------
Balance at beginning
of period. . . . . . . . . $1,234,908 934,182 625,818
Additions during
period (a) . . . . . . . . 123,140 315,945 309,747
Other (b). . . . . . . . . . (319) (15,219) (1,383)
---------- ---------- ----------
Balance at end
of period. . . . . . . . . $1,357,729 1,234,908 934,182
========== ========== ==========
(J) Reconciliation of accumulated depreciation:
Balance at beginning
of period. . . . . . . . . $ (125,594) (97,558) (79,544)
Depreciation expense . . . . (38,814) (30,800) (18,514)
Other (b). . . . . . . . . . 563 2,764 500
---------- ---------- ----------
Balance at end
of period. . . . . . . . . $ (163,845) (125,594) (97,558)
========== ========== ==========
<PAGE>
(a) Additions during the year ended December 31, 1998, include the
$77,334 consolidation of Citrus Park Town Center. Additions during the
year ended December 31, 1997, include the $134,160 and the $130,842
acquisition of Fox Valley Center and Hawthorn Center, respectively.
Additions during the year ended December 31, 1996, include the $260,931
acquisition of Old Orchard Center.
(b) Other includes write-off and sale of assets and
reclassifications to and from other accounts.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
URBAN SHOPPING CENTERS, INC.
By: MATTHEW S. DOMINSKI
President, Chief Executive Officer
and Director
Date: March 26, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: MATTHEW S. DOMINSKI
President, Chief Executive Officer
and Director
Date: March 26, 1999
By: ADAM S. METZ
Executive Vice President, Chief Financial
Officer, Treasurer, Director of Acquisitions
and Chief Accounting Officer
Date: March 26, 1999
By: NEIL G. BLUHM
Director
Date: March 26, 1999
By: JUDD D. MALKIN
Director
Date: March 26, 1999
By: JAMES B. DIGNEY
Director
Date: March 26, 1999
By: SUSAN GETZENDANNER
Director
Date: March 26, 1999
By: JOHN E. NEAL
Director
Date: March 26, 1999
By: PHILLIP B. ROONEY
Director
Date: March 26, 1999
By: JOHN G. SCHREIBER
Director
Date: March 26, 1999
By: HENRY T. SEGERSTROM
Director
Date: March 26, 1999
<PAGE>
URBAN SHOPPING CENTERS, INC.
EXHIBIT INDEX
3.1 Fourth Amended and Restated Articles of Incorporation of the
Registrant is hereby incorporated by reference to Exhibit 3.1 to the
Registrant's Form 10-Q (File No. 1-12278) filed on November 19, 1993
3.2 Second Amended and Restated By-Laws of the Registrant is hereby
incorporated by reference to Exhibit 3.2 to the Registrant's Form 10-K
(File No. 1-12278) filed on March 27, 1995
3.3 Articles Supplementary relating to the Registrant's Series A
Cumulative Convertible Redeemable Preferred Stock is hereby incorporated by
reference to Exhibit 10.6 to the Registrant's Form 8-K/A filed on December
22, 1997
3.4 Articles Supplementary relating to the Registrant's Series B
Cumulative Convertible Redeemable Preferred Stock is hereby filed herewith
4.1 Stock Certificate is hereby incorporated by reference to
Exhibit 4.1 to the Registrant's Form 10-Q (File No. 1-12278) filed on
November 19, 1993
4.2 Credit Agreement among Urban Shopping Centers, L.P., Union Bank of
Switzerland (New York Branch), Morgan Guaranty Trust Company of New York
and the several Lenders is hereby incorporated by reference to Exhibit 4.11
to the Registrant's Form 10-Q (File No. 1-2278) filed on November 9, 1995
4.3 Mortgage, Security Agreement, Assignment of Leases and Rents and
Fixture Filing dated as of February 10, 1997 made by LaSalle National
Trust, N.A. and Water Tower Joint Venture to and with Lehman Brothers
Holdings Inc. is hereby incorporated by reference to Exhibit 4.8 to the
Registrant's Form 10-Q (File No. 1-12278) filed on May 13, 1997
4.4 Promissory Note A dated as of February 10, 1997 by and between
Water Tower Joint Venture and Lehman Brothers Holdings Inc. is hereby
incorporated by reference to Exhibit 4.9 to the Registrant's Form 10-Q
(File No. 1-12278) filed on May 13, 1997
4.5 Promissory Note B dated as of February 10, 1997 by and between
Water Tower Joint Venture and Lehman Brothers Holdings Inc. is hereby
incorporated by reference to Exhibit 4.10 to the Registrant's Form 10-Q
(File No. 1-12278) filed on May 13, 1997
4.6 Mortgage, Security Agreement and Assignment of Rents dated as of
November 3, 1997 made by LaSalle National Bank and Oak Brook Urban Venture,
L.P. to and with USC Oakbrook, Inc., Goldman Sachs Mitsui Marine Derivative
Products, L.P. and Teachers' Retirement System of the State of Illinois is
hereby incorporated by reference to Exhibit 4.6 to the Registrant's Form
10-K (File No. 1-12278) filed on March 31, 1998
4.7 Fifth Amendment to Loan Agreement dated December 11, 1997 by and
among The Prudential Insurance Company of America, Old Orchard Urban
Limited Partnership and American National Bank and Trust Company of Chicago
is hereby incorporated by reference to Exhibit 4.7 to the Registrant's Form
10-K (File No. 1-12278) filed on March 31, 1998
10.1 Second Amended and Restated Agreement of Limited Partnership of
Urban Shopping Centers, L.P. is hereby incorporated by reference to Exhibit
10.1 to the Registrant's Form 10-Q (File No. 1-12278) filed on November 19,
1993
<PAGE>
URBAN SHOPPING CENTERS, INC.
EXHIBIT INDEX - CONTINUED
10.2 Corporate Services Agreement among the Registrant, Urban Shopping
Centers, L.P. and JMB Retail Properties Co. (now Urban Retail Properties
Co.) is hereby incorporated by reference to Exhibit 10.3 to the
Registrant's Form 10-Q (File No. 1-12278) filed on November 19, 1993
10.3 JMB Realty Corporation Employee Savings Plan is hereby
incorporated by reference to Exhibit 10.4 to the Registrant's Registration
Statement on Form S-11 (No. 33-64488)
10.4 Retirement Plan for Employees of Amfac, Inc. and Subsidiaries is
hereby incorporated by reference to Exhibit 10.5 to the Registrant's
Registration Statement on Form S-11 (No. 33-64488)
10.5 Urban Shopping Centers 1993 Option Plan is hereby incorporated by
reference to Exhibit 10.6 to the Registrant's Form 10-Q (File No. 1-12278)
filed on November 19, 1993
10.6 Non-Competition Agreement between JMB Realty Corporation and the
Registrant is hereby incorporated by reference to Exhibit 10.7 to the
Registrant's Form 10-Q (File No. 1-12278) filed on November 19, 1993
10.7 Non-Competition Agreement between JMB Institutional Realty
Corporation and the Registrant is hereby incorporated by reference to
Exhibit 10.8 to the Registrant's Form 10-Q (File No. 1-12278) filed on
November 19, 1993
10.8 Non-Competition Agreement between Neil G. Bluhm and the Registrant
is hereby incorporated by reference to Exhibit 10.9 to the Registrant's
Form 10-Q (File No. 1-12278) filed on November 19, 1993
10.9 Non-Competition Agreement between Judd D. Malkin and the
Registrant is hereby incorporated by reference to Exhibit 10.10 to the
Registrant's Form 10-Q (File No. 1-12278) filed on November 19, 1993
10.10 Omnibus Agreement among Urban Shopping Centers, L.P., JMB
Properties Company, JMB Retail Properties Co. (now Urban Retail Properties
Co.) and the Registrant is hereby incorporated by reference to Exhibit
10.12 to the Registrant's Form 10-Q (File No. 1-12278) filed on November
19, 1993
10.11 Indemnification Agreement between the Registrant and its Directors
and Officers is hereby incorporated by reference to Exhibit 10.13 to the
Registrant's Form 10-Q (File No. 1-12278) filed on November 19, 1993
10.12 Registration Rights and Lock-Up Agreement between the Registrant
and certain Investors is hereby incorporated by reference to Exhibit 10.14
to the Registrant's Form 10-Q (File No. 1-12278) filed on November 19, 1993
10.13 Stockholders Agreement between Center Partners, Ltd., Urban
Investment & Development Co., Urban-Water Tower Associates, JMB/Miami
Investors, L.P., Island Holidays, Ltd., Celtic Funding Corporation and the
Registrant is hereby incorporated by reference to Exhibit 10.15 to the
Registrant's Form 10-Q (File No. 1-12278) filed on November 19, 1993
<PAGE>
URBAN SHOPPING CENTERS, INC.
EXHIBIT INDEX - CONTINUED
10.14 Lease Agreement, dated December 31, 1990, by and between Teachers'
Retirement System of the State of Illinois and LaSalle National Trust,
N.A., as Trustee for Oak Brook Urban Venture, as amended by the First
Amendment to Lease Agreement and to Restated and Amended Memorandum of
Lease is hereby incorporated by reference to Exhibit 10.16 to the
Registrant's Registration Statement on Form S-11 (No. 33-64488)
10.15 Second Amendment to Lease Agreement by and between Teachers'
Retirement System of the State of Illinois and LaSalle National Trust,
N.A., as Trustee for Oak Brook Urban Venture, L.P. is hereby incorporated
by reference to Exhibit 10.17 to the Registrant's Form 10-Q (File No.
1-12278) filed on November 19, 1993
10.16 Net Ground Rental Lease Agreement with respect to Penn Square
Mall, as amended by Amendment of Net Ground Rental Lease and as further
amended by Second Amendment of Net Ground Rental Lease is hereby
incorporated by reference to Exhibit 10.18 to the Registrant's Registration
Statement on Form S-11 (No. 33-64488)
10.17 Ground Lease by and between The Newhall Land and Farming Company
and Valencia Town Center Associates is hereby incorporated by reference to
Exhibit 10.19 to the Registrant's Registration Statement on Form S-11 (No.
33-64488)
10.18 Restated Employment Agreement between Matthew S. Dominski and the
Registrant is hereby incorporated by reference to Exhibit 10.19 to the
Registrant's Form 10-K (File No. 1-12278) filed on March 25, 1994
10.19 Third Amendment to Lease Agreement by and between Teachers'
Retirement System of the State of Illinois and LaSalle National Trust,
N.A., as Trustee for Oak Brook Urban Venture, L.P. is hereby incorporated
by reference to Exhibit 10.20 to the Registrant's Form 10-K (File No.
1-12278) filed on March 25, 1994
10.20 First Amendment to Second Amended and Restated Agreement of
Limited Partnership of Urban Shopping Centers, L.P. is hereby incorporated
by reference to Exhibit 10.21 to the Registrant's Form 10-Q (File No.
1-12278) filed on August 9, 1995
10.21 First and Second Amendments to Urban Shopping Centers 1993 Option
Plan are hereby incorporated by reference to Exhibit 10.22 to the
Registrants Form 10-Q (File No. 1-12278) filed on August 9, 1995
10.22 Urban Shopping Centers 1996 Incentive Unit Program is hereby
incorporated by reference to Exhibit 10.1 to the Registrant's Form 8-K
filed on November 25, 1996
10.23 Second Amendment to Second Amended and Restated Agreement of
Limited Partnership of Urban Shopping Centers, L.P. is hereby incorporated
by reference to Exhibit 10.23 to the Registrant's Form 10-K (File No.
1-12278) filed on March 31, 1997
10.24 Agreement for Purchase and Sale of Partnership Interest by and
between ZML-00 Associates Limited Partnership, Urban Shopping Centers,
L.P., USC Old Orchard, Inc., and H. Rigel Barber, Gary A. Nikele and
Jeffery A. Gluskin, as owner trustees of the Old Orchard Trust, is hereby
incorporated by reference to Exhibit 10.24 to the Registrant's Form 10-K
(File No. 1-12278) filed on March 31, 1997
<PAGE>
URBAN SHOPPING CENTERS, INC.
EXHIBIT INDEX - CONCLUDED
10.25 Amended and Restated Agreement of Limited Partnership of Old
Orchard Urban Limited Partnership by and between USC Old Orchard, Inc. and
Urban Shopping Centers, L.P. is hereby incorporated by reference to Exhibit
10.25 to the Registrant's Form 10-K (File No. 1-12278) filed on March 31,
1997
10.26 Third Amendment to Urban Shopping Centers 1993 Option Plan is
hereby incorporated by reference to Exhibit 10.26 to the Registrant's Form
10-Q (File No. 1-12278) filed on May 13, 1997
10.27 Hawthorn, L.P. Agreement of Purchase and Sale of Partnership
Interest dated November 14, 1997 is hereby incorporated by reference to
Exhibit 10.1 to the Registrant's Form 8-K/A filed on December 22, 1997
10.28 Fox Valley Mall LLC Agreement of Purchase and Sale of Membership
Interest dated November 14, 1997 is hereby incorporated by reference to
Exhibit 10.2 to the Registrant's Form 8-K/A filed on December 22, 1997
10.29 Third Amendment to Second Amended and Restated Agreement of
Limited Partnership of Urban Shopping Centers, L.P. is hereby incorporated
by reference to Exhibit 10.7 to the Registrant's Form 8-K/A filed on
December 22, 1997
10.30 Urban Shopping Centers Deferred Cash Compensation Plan dated
August 1, 1998 is hereby filed herewith
10.31 Fourth Amendment to Second Amended and Restated Agreement of
Limited Partnership of Urban Shopping Centers, L.P. is hereby filed
herewith
13.1 1998 annual report to shareholders
21.1 Subsidiaries of the Registrant
23.1 Consent of KPMG LLP
27.1 Financial Data Schedule
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Although certain additional long-term debt instruments of
Registrant have been excluded from Exhibit 4 above, pursuant to Rule
601(b)(4)(iii), the Registrant commits to provide copies of such agreements
to the Securities and Exchange Commission upon request.
EXHIBIT 3.4
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URBAN SHOPPING CENTERS, INC.
ARTICLES SUPPLEMENTARY
SERIES B CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK
Urban Shopping Centers, Inc., a Maryland corporation (hereinafter
called the "Corporation"), hereby certifies to the Department of
Assessments and Taxation of the State of Maryland that:
FIRST: The Board of Directors of the Corporation has classified and
designated 773,515 unissued shares of series preferred stock, par value
$.01 per share, of the Corporation as shares of Series B Cumulative
Convertible Redeemable Preferred Stock ("Series B Preferred Stock"), with
the preferences, rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption thereof as
follows, which upon any restatement of the Corporation's charter (the
"Charter") shall be made part of Article Fifth thereof, with any necessary
or appropriate changes to the enumeration or lettering of sections or
subsections hereof:
SECTION 1. NUMBER OF SHARES AND DESIGNATION. The Series B Preferred
Stock shall be designated as "Series B Cumulative Convertible Redeemable
Preferred Stock" and the authorized number of shares of Series B Preferred
Stock constituting such series shall be 773,515, which number may be
decreased from time to time by the Board pursuant to Section 6 upon
reacquisition thereof in any manner, or by retirement thereof.
SECTION 2. DEFINITIONS. For purposes of the Series B Preferred
Stock, the following terms shall have the meanings indicated:
"Act" shall mean the Securities Act of 1933, as amended.
"Affiliate" shall mean, with respect to any Person, a Person
which directly, or indirectly through one or more intermediaries, controls
or is controlled by, or is under common control with, the Person specified.
"Base Common Stock Dividend" shall have the meaning set forth
in paragraph (a) of Section 9.
"Board" shall mean the Board of Directors of the Corporation or
any committee authorized by such Board of Directors to perform any of its
responsibilities with respect to the Series B Preferred Stock.
"Business Day" shall mean any day other than a Saturday, Sunday
or a day on which state or federally chartered banking institutions in
Chicago, Illinois are not required to be open.
"Call Date" shall have the meaning set forth in Section 5(b).
"Common Stock" shall mean the common stock, par value $.01 per
share, of the Corporation or the Corporation's capital stock into which the
outstanding Common Stock is reclassified.
"Conversion Price" shall mean the conversion price per share of
Common Stock for which each share of Series B Preferred Stock is
convertible, as such Conversion Price may be adjusted pursuant to Section
7(d). The initial Conversion Price shall be $32.32 (equivalent to an
initial conversion rate of one share of Common Stock for each share of
Series B Preferred Stock).
<PAGE>
"Current Market Price" of publicly traded shares of Common
Stock or any other class or series of capital stock or other security of
the Corporation or of any similar security of any other issuer for any day
shall mean the closing price, regular way on such day, or, if no sale takes
place on such day, the average of the reported closing bid and asked prices
regular way on such day, in either case as reported on the principal
national securities exchange on which such securities are listed or
admitted for trading, or, if such security is not quoted on any national
securities exchange, on the National Market of the National Association of
Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or, if such
security is not quoted on NASDAQ, the average of the closing bid and asked
prices on such day in the over-the-counter market as reported by NASDAQ or,
if bid and asked prices for such security on such day are not reported
through NASDAQ, the average of the bid and asked prices on such day as
furnished by any New York Stock Exchange or National Association of
Securities Dealers, Inc. member firm regularly making a market in such
security selected for such purpose by the Chief Executive Officer of the
Corporation or the Board or if any class or series of securities is not
publicly traded, the fair value of the shares of such class or series as
determined reasonably and in good faith by the Board.
"Distribution" shall have the meaning set forth in paragraph
(iii) of Section 7(d).
"Dividend Payment Date" shall mean, with respect to any
Dividend Period, (a) the date that cash dividends are paid on the Common
Stock with respect to such Dividend Period or (b) if such dividends have
not been paid on the Common Stock by 9:00 a.m., New York City time, on the
70th day from and including the last day of such Dividend Period, then on
that 70th day; provided, further, that if any Dividend Payment Date falls
on any day other than a Business Day, the dividend payment payable on such
Dividend Payment Date shall be paid on the Business Day immediately
following such Dividend Payment Date.
"Dividend Periods" shall mean the Initial Dividend Period and
each subsequent quarterly dividend period commencing on and including
January 1, April 1, July 1 and October 1 of each year and ending on and
including the day preceding the first day of the next succeeding Dividend
Period, other than the Dividend Period during which any Series B Preferred
Stock is redeemed pursuant to Section 5, which shall end on and include the
Call Date with respect to the Series B Preferred Stock being redeemed.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Fair Market Value" shall mean the average of the daily Current
Market Prices of a share of Common Stock during five consecutive Trading
Days selected by the Corporation commencing not more than twenty Trading
Days before, and ending not later than, the earlier of the day in question
and the day before the "ex" date with respect to the issuance or
distribution requiring such computation. The term "'ex' date," when used
with respect to any issuance or distribution, means the first day on which
the Common Stock trades regular way, without the right to receive such
issuance or distribution, on the exchange or in the market, as the case may
be, used to determine that day's Current Market Price.
"Initial Dividend Period" shall mean the period commencing on
and including the Issue Date and ending on and including December 31, 1998.
"Issue Date" shall mean December 29, 1998.
"Junior Stock" shall have the meaning set forth in Section
8(c).
"NYSE" shall mean the New York Stock Exchange, Inc.
"Parity Stock" shall have the meaning set forth in Section
8(b).
<PAGE>
"Person" shall mean any individual, firm, partnership,
corporation or other entity, including any successor (by merger or
otherwise) of such entity.
"Senior Stock" shall have the meaning set forth in Section
8(a).
"Set apart for payment" shall be deemed to include, without any
action other than the following, the recording by the Corporation in its
accounting ledgers of any accounting or bookkeeping entry which indicates,
pursuant to a declaration of dividends or other distributions by the Board,
the allocation of funds to be so paid on any series or class of capital
stock of the Corporation; provided, however, that if any funds for any
class or series of Junior Stock or any class or series of Parity Stock are
placed in a separate account of the Corporation or delivered to a
disbursing, paying or other similar agent, then "set apart for payment"
with respect to the Series B Preferred Stock shall mean placing such funds
in a separate account or delivering such funds to a disbursing, paying or
other similar agent.
"Trading Day" shall mean, with respect to any securities, any
day on which such securities are traded on the principal national
securities exchange on which such securities are listed or admitted for
trading or, if such securities are not listed or admitted for trading on
any national securities exchange, NASDAQ or, if such securities are not
listed or admitted for trading on NASDAQ, any Business Day.
"Transaction" shall have the meaning set forth in Section 7(e).
"Transfer Agent" means such transfer agent as may be designated
by the Board or its designee as the transfer agent for the Series B
Preferred Stock; provided that, if the Corporation has not designated a
transfer agent, then the Corporation shall act as the transfer agent for
the Series B Preferred Stock.
"Voting Preferred Stock" shall have the meaning set forth in
Section 9.
SECTION 3. DIVIDENDS.
(a) The holders of Series B Preferred Stock shall be entitled
to receive, when, as and if authorized and declared by the Board out of
funds legally available for that purpose, cumulative dividends payable in
cash in an amount per share equal to the greater of (i) the base dividend
of $0.525 per quarter (the "Base Rate") or (ii) the cash dividends declared
on the number of shares of Common Stock, or portion thereof, into which a
share of Series B Preferred Stock would then be convertible, without regard
to any time restrictions on the convertibility of the Series B Preferred
Stock. The amount referred to in clause (ii) of this paragraph (a) with
respect to each succeeding Dividend Period shall be determined as of the
applicable Dividend Payment Date by multiplying the number of shares of
Common Stock, or portion thereof calculated to the fourth decimal point,
into which a share of Series B Preferred Stock would then be convertible
(without regard to any time restrictions on the convertibility of the
Series B Preferred Stock) at the opening of business on such Dividend
Payment Date (based on the Conversion Price then in effect) by the
aggregate cash dividends payable or paid for such Dividend Period in
respect of a share of Common Stock outstanding as of the record date for
the dividend payable on the Common Stock for such Dividend Period. If (A)
the Corporation pays a cash dividend on the Common Stock after the Dividend
Payment Date for the corresponding Dividend Period and (B) the dividend on
the Series B Preferred Stock for such Dividend Period calculated pursuant
to clause (ii) of this paragraph (a), taking into account the Common Stock
dividend referenced in clause (A), exceeds the dividend previously declared
<PAGE>
on the Series B Preferred Stock for such Dividend Period, the Corporation
shall pay an additional dividend to the holders of the Series B Preferred
Stock on the date that the Common Stock dividend referenced in clause (A)
is paid, in an amount equal to the difference between the dividend
calculated pursuant to clause (B) and the dividends previously declared on
the Series B Preferred Stock with respect to such Dividend Period. Such
dividends shall be cumulative from the Issue Date, whether or not in any
Dividend Period or Periods such dividends are declared or there are funds
of the Corporation legally available for the payment of such dividends, and
shall be payable quarterly in arrears on the Dividend Payment Dates,
commencing on the first Dividend Payment Date after the Issue Date. Each
such dividend shall be payable in arrears to the holders of record of the
Series B Preferred Stock, as they appear on the stock records of the
Corporation at the close of business on such record date as is fixed by the
Board which shall be not more than 60 days prior to the corresponding
Dividend Payment Date and, within such 60-day period, shall be the same
date as the record date for the regular quarterly dividend payable on the
Common Stock for such Dividend Period (or, if there is no such record date
for the Common Stock, then such date as the Board may fix). Accumulated,
accrued and unpaid dividends for any past Dividend Periods may be
authorized or declared and paid at any time, without reference to any
regular Dividend Payment Date, to holders of record on such record date as
may be fixed by the Board which shall be not more than 45 days prior to the
corresponding payment date.
(b) The amount of dividends payable per share of Series B
Preferred Stock for the Initial Dividend Period, or any other period
shorter than a full Dividend Period, shall be computed ratably on the basis
of a 360-day year of twelve 30-day months. Holders of Series B Preferred
Stock shall not be entitled to any dividends, whether payable in cash,
property or stock, in excess of cumulative dividends as herein provided on
the Series B Preferred Stock. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments
on the Series B Preferred Stock which may be in arrears.
(c) So long as any of the Series B Preferred Stock is
outstanding, except as described in the immediately following sentence, no
dividends shall be declared or paid or set apart for payment by the
Corporation and no other distribution of cash or other property shall be
declared or made directly or indirectly by the Corporation with respect to
any class or series of Parity Stock for any period unless all accumulated,
accrued and unpaid dividends have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set apart
for payment for all past Dividend Periods with respect to the Series B
Preferred Stock. When dividends are not paid in full or a sum sufficient
for such payment is not set apart for payment as provided above, all
dividends declared on the Series B Preferred Stock and all dividends
declared on any other class or series of Parity Stock shall be declared
ratably in proportion to the respective amounts of dividends accumulated,
accrued and unpaid on the Series B Preferred Stock and on such Parity
Stock.
(d) So long as any of the Series B Preferred Stock is
outstanding, no dividends (other than dividends or distributions paid in,
or options, warrants or rights to subscribe for or purchase, Junior Stock)
shall be declared or paid or set apart for payment by the Corporation and
no other distribution of cash or other property shall be declared or made
directly or indirectly by the Corporation with respect to any class or
series of Junior Stock, nor shall any Junior Stock be redeemed, purchased
or otherwise acquired (other than a redemption, purchase or other
acquisition of Common Stock made for purposes of an employee incentive or
benefit plan of the Corporation or any subsidiary) for any consideration
(or any moneys be paid to or made available for a sinking fund for the
redemption of any Junior Stock) directly or indirectly by the Corporation
(except by conversion into or exchange for Junior Stock), nor shall any
other cash or other property otherwise be paid or distributed to or for the
<PAGE>
benefit of any holder of Junior Stock in respect thereof directly or
indirectly by the Corporation unless in each case (i) all dividends
(including all accumulated, accrued and unpaid dividends) have been or
contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for all past Dividend Periods
with respect to the Series B Preferred Stock and all past dividend periods
with respect to any Parity Stock and (ii) a sum sufficient for the payment
thereof has been or contemporaneously is paid or set apart for payment of
the dividend for the current Dividend Period with respect to the Series B
Preferred Stock and the current dividend period with respect to any Parity
Stock.
SECTION 4. LIQUIDATION PREFERENCE.
(a) Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, before any payment or
distribution of the assets of the Corporation (whether capital or
surplus) shall be made to or set apart for the holders of Junior Stock, the
holders of Series B Preferred Stock shall be entitled to receive $32.32 per
share of Series B Preferred Stock (the "Liquidation Preference"), plus an
amount equal to all dividends (whether or not earned or declared)
accumulated, accrued and unpaid thereon to the date of final distribution
to such holders, if any; but such holders shall not be entitled to any
further payment. Until the holders of the Series B Preferred Stock have
been paid the Liquidation Preference in full, plus an amount equal to all
dividends (whether or not earned or declared) accumulated, accrued and
unpaid thereon to the date of final distribution to such holders, no
payment shall be made to any holder of Junior Stock upon any liquidation,
dissolution or winding up of the Corporation. If, upon any liquidation,
dissolution or winding up of the Corporation, the assets of the
Corporation, or the proceeds thereof, distributable among the holders of
Series B Preferred Stock are insufficient to pay in full such preferential
amount and liquidating payments on any other class or series of Parity
Stock, then such assets, or the proceeds thereof, shall be distributed
among the holders of Series B Preferred Stock and any such other Parity
Stock ratably in proportion to the respective amounts which would be
payable on such Series B Preferred Stock and any such other Parity Stock if
all amounts payable thereon were paid in full.
(b) Upon any liquidation, dissolution or winding up of the
Corporation, after payment has been made in full to the holders of Series B
Preferred Stock and any Parity Stock as provided in this Section 4, any
other series or class of Junior Stock shall, subject to the respective
terms thereof, be entitled to receive any and all assets remaining to be
paid or distributed, and the holders of the Series B Preferred Stock and
any Parity Stock shall not be entitled to share therein.
(c) For purposes of this Section 4, (i) a consolidation or
merger of the Corporation with or into one or more corporations, (ii) a
sale or transfer of all or substantially all of the Corporation's assets or
(iii) a statutory share exchange shall not be deemed to be a liquidation,
dissolution or winding up, voluntary or involuntary, of the Corporation.
<PAGE>
SECTION 5. REDEMPTION AT THE OPTION OF THE CORPORATION.
(a) Subject to Section 11.3, Series B Preferred Stock shall
not be redeemable by the Corporation prior to the sixth anniversary of the
Issue Date; provided, however, that if at any time fewer than 377,291
aggregate shares of Series A Cumulative Convertible Redeemable Preferred
Stock (the "Series A Preferred Stock") and Series B Preferred Stock remain
outstanding (which number shall be adjusted proportionately to reflect any
stock dividends, splits, reverse splits or combinations in the Series A
Preferred Stock and Series B Preferred Stock), the Corporation may redeem
all, but not less than all, such shares of Series B Preferred Stock at any
time in the manner provided in this Section 5; provided further, however,
that if the Corporation exercises such right to redeem such shares of
Series B Preferred Stock, the Corporation must simultaneously redeem all of
the Series A Preferred Stock then outstanding according to the terms of the
Articles Supplementary for the Series A Preferred Stock. On and after the
sixth anniversary of the Issue Date, the Corporation, at its option, may
redeem Series B Preferred Stock, in whole at any time or in part from time
to time, at a redemption price payable in cash equal to the Liquidation
Preference, plus all accrued and unpaid dividends to the Call Date.
(b) Series B Preferred Stock shall be redeemed by the
Corporation on the date specified in the notice to holders required under
Section 5(d) (the "Call Date"). The Call Date shall be selected by the
Corporation, shall be specified in the notice of redemption and shall be
not less than 30 days nor more than 60 days after the date notice of
redemption is sent by the Corporation.
(c) Unless all dividends (including all accumulated, accrued
and unpaid dividends) have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for
payment for all past Dividend Periods with respect to the Series B
Preferred Stock and all past dividend periods with respect to any Parity
Stock, no shares of Series B Preferred Stock may be redeemed unless all
outstanding shares of Series B Preferred Stock are simultaneously redeemed
and neither the Corporation nor any affiliate of the Corporation may
purchase or acquire shares of Series B Preferred Stock, except pursuant to
a purchase or exchange offer made on the same terms to all holders of
shares of Series B Preferred Stock.
(d) If the Corporation redeems shares of Series B Preferred
Stock pursuant to Section 5(a), notice of such redemption shall be given to
each holder of record of shares to be redeemed. Such notice shall be
provided by first class mail, postage prepaid, at such holder's address as
it appears on the stock records of the Corporation. Neither the failure to
mail any notice required by this paragraph (d), nor any defect therein or
in the mailing thereof to any particular holder, shall affect the
sufficiency of the notice or the validity of the proceedings for redemption
with respect to any other holders. Any notice which was mailed in the
manner herein provided shall be conclusively presumed to have been duly
given on the date mailed whether or not the holder receives the notice.
Each such notice shall state, as appropriate: (i) the Call Date; (ii) the
number of shares of Series B Preferred Stock to be redeemed and, if fewer
than all shares held by such holder are to redeemed, the number of shares
to be redeemed from such holder; (iii) the place or places at which
certificates representing such shares are to be surrendered for cash; and
(iv) the then-current Conversion Price. If the Corporation has mailed
notice of the redemption of any shares of Series B Preferred Stock as
provided above, then from and after the Call Date (unless the Corporation
fails to make available the amount of cash necessary to effect such
redemption), (A) except as otherwise provided herein, dividends shall cease
to accumulate or accrue on the shares called for redemption (except that,
in the case of a Call Date which falls after a dividend record date and
prior to the related Dividend Payment Date, holders of Series B Preferred
<PAGE>
Stock on the dividend record date shall be entitled on such Dividend
Payment Date to receive the dividend payable on such shares), (B) such
shares shall no longer be deemed to be outstanding and (C) all rights of
the holders thereof as holders of Series B Preferred Stock shall cease
(except the rights to receive the cash payable upon such redemption,
without interest thereon, upon surrender and endorsement of their
certificates if so required and to receive any dividends payable thereon).
The Corporation's obligation to make available the redemption price in
accordance with the preceding sentence shall be deemed fulfilled if, on or
before the Call Date, the Corporation deposits with a bank or trust company
(which may be an affiliate of the Corporation) that has, or is an affiliate
of a bank or trust company that has, capital and surplus of at least
$50,000,000, such amount of cash as is necessary for such redemption, in
trust, with irrevocable instructions that such cash be applied to the
redemption of the shares called for redemption. No interest shall accrue
for the benefit of the holders of shares of Series B Preferred Stock to be
redeemed on any cash so set aside by the Corporation. Subject to applicable
escheat laws, any such cash unclaimed at the end of two years from the Call
Date shall revert to the general funds of the Corporation, after which
reversion the holders of shares of Series B Preferred Stock so called for
redemption shall look only to the general funds of the Corporation for the
payment of such cash.
As promptly as practicable after the surrender in accordance
with such notice of the certificates representing any shares of Series B
Preferred Stock to be redeemed (properly endorsed or assigned for transfer,
if the Corporation so requires and the notice so states), such certificates
shall be exchanged for cash (without interest thereon) for which such
shares have been redeemed in accordance with such notice. If fewer than all
outstanding shares of Series B Preferred Stock are to be redeemed, the
shares to be redeemed shall be selected by the Corporation from outstanding
shares of Series B Preferred Stock not previously called for redemption by
lot or, with respect to the number of shares of Series B Preferred Stock
held of record by each holder of such shares, pro rata (as nearly as may
be) or by any other method as may be determined by the Board in its
discretion to be equitable. If fewer than all shares of Series B Preferred
Stock represented by any certificate are redeemed, then a new certificate
representing the unredeemed shares shall be issued without cost to the
holder thereof.
SECTION 6. STATUS OF REACQUIRED STOCK. All shares of Series B
Preferred Stock which are issued and reacquired in any manner by the
Corporation (including shares of Series B Preferred Stock which are
surrendered for conversion into Common Stock) shall be returned to the
status of authorized but unissued shares of Series B Preferred Stock.
SECTION 7. CONVERSION. At any time on or after the day which is 270
days after the Issue Date, holders of shares of Series B Preferred Stock
shall have the right to convert all or a portion of such shares into shares
of Common Stock, as follows:
(a) Subject to and upon compliance with the provisions of
this Section 7, a holder of shares of Series B Preferred Stock shall have
the right, at such holder's option, at any time on or after the day which
is 270 days after the Issue Date, to convert such shares, in whole or in
part, into the number of fully paid and non-assessable shares of authorized
but previously unissued shares of Common Stock per each share of Series B
Preferred Stock obtained by dividing the Liquidation Preference (excluding
any accumulated, accrued and unpaid dividends) per share of Series B
Preferred Stock by the Conversion Price (as in effect at the time and on
the date specified in the last paragraph of Section 7(b)) and by
surrendering such shares to be converted, such surrender to be made in the
manner provided in Section 7(b); provided, however, that the right to
convert shares of Series B Preferred Stock called for redemption pursuant
to Section 5 shall terminate at the close of business on the Call Date
fixed for such redemption, unless the Corporation defaults in making
payment of cash payable upon such redemption under Section 5.
<PAGE>
(b) In order to exercise the conversion right, the holder of
each share of Series B Preferred Stock to be converted shall surrender the
certificate representing such share, duly endorsed or assigned to the
Corporation or in blank, at the office of the Transfer Agent, accompanied
by written notice to the Corporation that such holder elects to convert
such share of Series B Preferred Stock. Unless the shares of Common Stock
issuable on conversion are to be issued in the same name as the name in
which such share of Series B Preferred Stock is registered, each share
surrendered for conversion shall be accompanied by instruments of transfer,
in form satisfactory to the Corporation, duly executed by the holder or
such holder's duly authorized attorney and an amount sufficient to pay any
transfer or similar tax (or evidence reasonably satisfactory to the
Corporation demonstrating that such taxes have been paid).
Holders of shares of Series B Preferred Stock at the close of
business on a dividend payment record date shall be entitled to receive the
dividend payable on such shares on the corresponding Dividend Payment Date
notwithstanding the conversion thereof following such dividend payment
record date and prior to such Dividend Payment Date. Except as provided
above, the Corporation shall make no payment or allowance for unpaid
dividends, whether or not in arrears, on converted shares or for dividends
on the shares of Common Stock issued upon such conversion.
As promptly as practicable after the surrender of certificates
for shares of Series B Preferred Stock as provided above, the Corporation
shall issue and deliver at such office to such holder, or send on such
holder's written order, a certificate or certificates for the number of
full shares of Common Stock issuable upon conversion of such shares of
Series B Preferred Stock in accordance with the provisions of this Section
7, and any fractional interest in respect of a share of Common Stock
arising upon such conversion shall be settled as provided in Section 7(c).
Each conversion shall be deemed to have been effected
immediately prior to the close of business on the date on which the
certificates for shares of Series B Preferred Stock have been surrendered
and such notice has been received by the Corporation as provided above, and
the Person or Persons in whose name or names any certificate or
certificates for shares of Common Stock are issuable upon such conversion
shall be deemed to have become the holder or holders of record of the
shares represented thereby at such time on such date and such conversion
shall be at the Conversion Price in effect at such time on such date unless
the stock transfer books of the Corporation are closed on such date, in
which event such Person or Persons shall be deemed to have become such
holder or holders of record at the close of business on the next succeeding
day on which such stock transfer books are open, but such conversion shall
be at the Conversion Price in effect on the date on which such shares were
surrendered and such notice was received by the Corporation. If the
dividend payment record dates for the Series B Preferred Stock and Common
Stock do not coincide, and the preceding sentence does not operate to
ensure that a holder of shares of Series B Preferred Stock whose shares are
converted into Common Stock does not receive dividends on both the shares
of Series B Preferred Stock and the Common Stock into which such shares are
converted for the same Dividend Period, then notwithstanding anything
herein to the contrary, it is the intent, and the Transfer Agent is
authorized to ensure, that no conversion after the earlier of such record
dates will be accepted until after the later of such record dates.
<PAGE>
(c) No fractional shares of Common Stock or scrip
representing fractions of a share of Common Stock shall be issued upon
conversion of Series B Preferred Stock. Instead of any fractional interest
in a share of Common Stock which would otherwise be deliverable upon
conversion of a share of Series B Preferred Stock, the Corporation shall
pay to the holder of such share an amount in cash based upon the Current
Market Price of the Common Stock on the Trading Day immediately preceding
the date of conversion. If more than one share is surrendered for
conversion at one time by the same holder, the number of full shares of
Common Stock issuable upon conversion thereof shall be computed on the
basis of the aggregate number of shares of Series B Preferred Stock so
surrendered.
(d) The Conversion Price shall be adjusted from time to time
as follows:
(i) If the Corporation after the Issue Date (A) pays a
dividend or makes a distribution on its capital stock in shares of Common
Stock, (B) subdivides its outstanding Common Stock into a greater number of
shares, (C) combines its outstanding Common Stock into a smaller number of
shares or (D) issues any shares of capital stock by reclassification of its
outstanding Common Stock, the Conversion Price in effect at the opening of
business on the day following the date fixed for the determination of
stockholders entitled to receive such dividend or distribution or at the
opening of business on the day following the day on which such subdivision,
combination or reclassification becomes effective, as the case may be,
shall be adjusted so that the holder of any share of Series B Preferred
Stock thereafter surrendered for conversion shall be entitled to receive
the number of shares of Common Stock (or fraction of a share of Common
Stock) which such holder would have owned or been entitled to receive after
the happening of any of the events described above if such share of Series
B Preferred Stock had been converted immediately prior to the record date
in the case of a dividend or distribution or the effective date in the case
of a subdivision, combination or reclassification. An adjustment made
pursuant to this paragraph (i) shall become effective immediately after the
opening of business on the day next following the record date (except as
provided in Section 7(h)) in the case of a dividend or distribution and
shall become effective immediately after the opening of business on the day
next following the effective date in the case of a subdivision, combination
or reclassification.
(ii) If the Corporation after the Issue Date issues
rights, options or warrants to all holders of Common Stock entitling them
(for a period expiring within 45 days after the record date described
below) to subscribe for or purchase Common Stock at a price per share less
than 95% (100% if a stand-by underwriter is used which charges the
Corporation a commission) of the Fair Market Value per share of the Common
Stock on the record date for the determination of stockholders entitled to
receive such rights, options or warrants, then the Conversion Price in
effect at the opening of business on the day next following such record
date shall be adjusted to equal the price determined by multiplying (A) the
Conversion Price in effect immediately prior to the opening of business on
the day following the date fixed for such determination by (B) a fraction,
the numerator of which shall be the sum of (1) the number of shares of
Common Stock outstanding on the close of business on the date fixed for
such determination and (2) the number of shares which could be purchased at
95% (100% if a stand-by underwriter is used which charges the Corporation a
commission) of such Fair Market Value from the aggregate proceeds to the
Corporation from the exercise of such rights, options or warrants for
Common Stock, and the denominator of which shall be the sum of (3) the
number of shares of Common Stock outstanding on the close of business on
the date fixed for such determination and (4) the number of additional
shares of Common Stock offered for subscription or purchase pursuant to
such rights, options or warrants. Such adjustment shall become effective
immediately after the opening of business on the day next following such
record date (except as provided in Section 7(h)). In determining whether
any rights, options or warrants entitle the holders of Common Stock to
subscribe for or purchase Common Stock at less than 95% (100% if a stand-by
<PAGE>
underwriter is used which charges the Corporation a commission) of such
Fair Market Value, there shall be taken into account any consideration
received by the Corporation upon issuance and upon exercise of such rights,
options or warrants, the value of such consideration, if other than cash,
to be determined in good faith by the Board.
(iii) If the Corporation after the Issue Date makes a
distribution on its Common Stock other than in cash or Common Stock
(including any distribution in securities (other than rights, options or
warrants referred to in paragraph (ii) of Section 7(d)) (each of the
foregoing being referred to herein as a "distribution"), then the
Conversion Price in effect at the opening of business on the day next
following the record date for determination of stockholders entitled to
receive such distribution shall be adjusted to equal the price determined
by multiplying (A) the Conversion Price in effect immediately prior to the
opening of business on the day following the record date by (B) a fraction,
the numerator of which shall be the difference between (1) the number of
shares of Common Stock outstanding on the close of business on the record
date and (2) the number of shares determined by dividing (x) the aggregate
value of the property being distributed by (y) the Fair Market Value per
share of Common Stock on the record date, and the denominator of which
shall be the number of shares of Common Stock outstanding on the close of
business on the record date. Such adjustment shall become effective
immediately after the opening of business on the day next following such
record date (except as provided below). The value of the property being
distributed shall be determined in good faith by the Board; provided,
however, that, if the property being distributed is a publicly traded
security, its value shall be calculated in accordance with the procedure
for calculating the Fair Market Value of a share of Common Stock
(calculated for a period of five consecutive Trading Days commencing on the
twentieth Trading Day after the distribution). Neither the issuance by the
Corporation of rights, options or warrants to subscribe for or purchase
securities of the Corporation nor the exercise thereof shall be deemed a
distribution under this paragraph (iii).
(iv) If the Corporation after the Issue Date acquires,
pursuant to an issuer or self tender offer, all or any portion of the
outstanding Common Stock and such tender offer involves the payment of
consideration per share of Common Stock having a fair market value (as
determined in good faith by the Board), at the last time (the "Expiration
Time") tenders may be made pursuant to such offer, which exceeds the
Current Market Price per share of Common Stock on the Trading Day next
succeeding the Expiration Time, then the Conversion Price in effect on the
opening of business on the Trading Day next succeeding the Expiration Time
shall be adjusted to equal the price determined by multiplying (A) the
Conversion Price in effect immediately prior to the Expiration Time by (B)
a fraction, the numerator of which shall be (1) the number of shares of
Common Stock outstanding (including the shares acquired in the tender offer
(the "Acquired Shares")) immediately prior to the Expiration Time,
multiplied by (2) the Current Market Price per share of Common Stock on the
Trading Day next succeeding the Expiration Time, and the denominator of
which shall be the sum of (3) the fair market value (determined as provided
above) of the aggregate consideration paid to acquire the Acquired Shares
and (4) the product of (x) the number of shares of Common Stock outstanding
(less any Acquired Shares) at the Expiration Time, multiplied by (y) the
Current Market Price per share of Common Stock on the Trading Day next
succeeding the Expiration Time.
(v) No adjustment to the Conversion Price shall be
required unless such adjustment would require a cumulative increase or
decrease of at least 1% in such price; provided, however, that any
adjustments which by reason of this paragraph (v) are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment until made; and provided, further, that any adjustment shall be
required and made in accordance with the provisions of this Section 7
(other than this paragraph (v)) not later than such time as may be required
<PAGE>
in order to preserve the tax-free nature of a distribution to the holders
of Common Stock. Notwithstanding any other provisions of this Section 7,
the Corporation shall not be required to make any adjustment to the
Conversion Price for the issuance of (A) any Common Stock pursuant to any
plan providing for the reinvestment of dividends or interest payable on
securities of the Corporation and the investment of optional amounts in
Common Stock under such plan or (B) any options, rights or Common Stock
pursuant to any stock option, stock purchase or other stock-based plan
maintained by the Corporation. All calculations under this Section 7 shall
be made to the nearest cent (with $0.005 being rounded upward) or to the
nearest one-tenth of a share (with 0.05 of a share being rounded upward),
as the case may be. Anything in this Section 7(d) to the contrary
notwithstanding, the Corporation shall be entitled, to the extent permitted
by law, to make such reductions in the Conversion Price, in addition to
those required by this Section 7(d), as it in its discretion determines to
be advisable in order that any stock dividends, subdivision of shares,
reclassification or combination of shares, distribution of rights or
warrants to purchase stock or securities, or a distribution of other assets
(other than cash dividends) hereafter made by the Corporation to its
stockholders are not taxable, or if that is not possible, to diminish any
income taxes which are otherwise payable because of such event.
(e) If the Corporation is a party to any transaction
(including without limitation a merger, consolidation, statutory share
exchange, issuer or self tender offer for at least one-third of the shares
of Common Stock outstanding, a sale of all or substantially all of the
Corporation's assets or a recapitalization of the Common Stock, but
excluding any transaction as to which paragraph (i) of Section 7(d)
applies) (each of the foregoing being referred to herein as a
"Transaction"), in each case as a result of which shares of Common Stock
are converted into the right to receive stock, securities or other property
(including cash or any combination thereof), each share of Series B
Preferred Stock which is not converted into the right to receive stock,
securities or other property in connection with such Transaction shall
thereupon be convertible into the kind and amount of shares of stock,
securities and other property (including cash or any combination thereof)
receivable upon such consummation by a holder of that number of shares of
Common Stock into which one share of Series B Preferred Stock was
convertible immediately prior to such Transaction (without giving effect to
any Conversion Price adjustment pursuant to paragraph (iv) of Section
7(d)). The Corporation shall not be a party to any Transaction unless the
terms of such Transaction are consistent with the provisions of this
Section 7(e), and it shall not consent or agree to the occurrence of any
Transaction until the Corporation has entered into an agreement with the
successor or purchasing entity, as the case may be, for the benefit of the
holders of the Series B Preferred Stock which contains provisions enabling
the holders of the Series B Preferred Stock which remain outstanding after
such Transaction to convert into the consideration received by holders of
Common Stock at the Conversion Price in effect immediately prior to such
Transaction. The provisions of this Section 7(e) shall similarly apply to
successive Transactions.
(f) If:
(i) the Corporation declares a dividend (or any other
distribution) on the Common Stock (other than cash dividends and cash
distributions); or
(ii) the Corporation authorizes the granting to all
holders of the Common Stock of rights or warrants to subscribe for or
purchase any shares of any class or series of capital stock or any other
rights or warrants; or
<PAGE>
(iii) there is any reclassification of the outstanding
Common Stock or any consolidation or merger to which the Corporation is a
party and for which approval of any stockholders of the Corporation is
required, or a statutory share exchange, or an issuer or self tender offer
for at least one-third of the outstanding shares of Common Stock (or an
amendment thereto changing the maximum number of shares sought or the
amount or type of consideration being offered therefor has been adopted),
or the sale or transfer of all or substantially all of the assets of the
Corporation as an entirety; or
(iv) there occurs the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation,
then the Corporation shall cause to be filed with the Transfer Agent and
shall cause to be mailed to each holder of shares of Series B Preferred
Stock at such holder's address as shown on the stock records of the
Corporation, as promptly as possible, a notice stating (A) the record date
for the payment of such dividend, distribution or rights or warrants, or,
if a record date is not established, the date as of which the holders of
Common Stock of record to be entitled to such dividend, distribution or
rights or warrants are to be determined or (B) the date on which such
reclassification, consolidation, merger, statutory share exchange, sale,
transfer, liquidation, dissolution or winding up is expected to become
effective, and the date as of which it is expected that holders of Common
Stock of record shall be entitled to exchange their shares of Common Stock for
securities or other property, if any, deliverable upon such reclassification,
consolidation, merger, statutory share exchange, sale, transfer, liquidation,
dissolution or winding up or (C) the date on which such tender offer
commenced, the date on which such tender offer is scheduled to expire
unless extended, the consideration offered and the other material
terms thereof (or the material terms of any amendment thereto). Failure
to give or receive such notice or any defect therein shall not affect
the legality or validity of the proceedings described in this Section 7.
(g) Whenever the Conversion Price is adjusted as herein provided, the
Corporation shall promptly file with the Transfer Agent an officer's
certificate setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment
which certificate shall be conclusive evidence of the correctness of
such adjustment absent manifest error. Promptly after delivery of such
certificate, the Corporation shall prepare a notice of such adjustment
of the Conversion Price setting forth the adjusted Conversion Price and
the date such adjustment becomes effective and shall mail such notice
of such adjustment of the Conversion Price to each holder of shares
of Series B Preferred Stock at such holder's last address as shown on the
stock records of the Corporation.
(h) In any case in which Section 7(d) provides that an adjustment shall
become effective on the day next following the record date for an event,
the Corporation may defer until the occurrence of such event (i) issuing to
the holder of any share of Series B Preferred Stock converted after such
record date and before the occurrence of such event the additional Common
Stock issuable upon such conversion by reason of the adjustment required
by such event over and above the Common Stock issuable upon such conversion
before giving effect to such adjustment and (ii) paying to such holder any
amount of cash in lieu of any fraction pursuant to Section 7(c).
<PAGE>
(i) There shall be no adjustment of the Conversion Price in case
of the issuance of any capital stock of the Corporation in a reorganization,
acquisition or other similar transaction except as specifically set forth
in this Section 7.
(j) If the Corporation takes any action affecting the Common
Stock, other than action described in this Section 7, which in the opinion
of the Board would materially and adversely affect the conversion rights of
the holders of Series B Preferred Stock, the Conversion Price for the
Series B Preferred Stock may be adjusted downward, to the extent permitted
by law, in such manner, if any, and at such time as the Board, in
its sole discretion, may determine to be equitable under the circumstances.
(k) The Corporation shall at all times reserve and keep
available, free from preemptive rights, out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting conversion of the
Series B Preferred Stock, the full number of shares of Common Stock
deliverable upon conversion of all outstanding shares of Series B
Preferred Stock not theretofore converted into Common Stock. For purposes
of this Section 7(k), the number of shares of Common Stock which are
deliverable upon conversion of all outstanding shares of Series B Preferred
Stock shall be computed as if at the time of computation all such
outstanding shares were held by a single holder (and without regard to
the Ownership Limit set forth in the Charter of the Corporation).
The Corporation covenants that any shares of Common Stock issued
upon conversion of the shares of Series B Preferred Stock shall be validly
issued, fully paid and nonassessable.
The Corporation shall use its best efforts to list the shares of
Common Stock required to be delivered upon conversion of the shares of
Series B Preferred Stock, prior to such delivery, on each national securities
exchange, if any, on which the outstanding shares of Common Stock are listed
at the time of such delivery.
(l) The Corporation shall pay any and all documentary stamp or
similar issue or transfer taxes payable in respect of the issuance or delivery
of Common Stock or other securities or property on conversion or redemption of
Series B Preferred Stock pursuant hereto; provided, however, that the
Corporation shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance or delivery of Common
Stock or other securities or property in a name other than that of the
holder of the Series B Preferred Stock to be converted or redeemed, and
no such issuance or delivery shall be made unless and until the Person
requesting such issuance or delivery has paid to the Corporation the
amount of any such tax or established, to the reasonable satisfaction
of the Corporation, that such tax has been paid.
(m) In addition to any other adjustment required hereby,
to the extent permitted by law, the Corporation from time to time may
decrease the Conversion Price by any amount, permanently or for a period
of at least twenty Business Days, if the decrease is irrevocable during
the period.
<PAGE>
(n) Notwithstanding anything to the contrary contained in
this Section 7, conversion of Series B Preferred Stock pursuant to this
Section 7 shall be permitted only to the extent that such conversion would
not result in a violation of the Ownership Limit (as defined in the
Charter), after taking into account any waiver of such limitation granted
to any holder of Series B Preferred Stock.
SECTION 8. RANKING. Any class or series of capital stock of the
Corporation shall be deemed to rank:
(a) senior to the Series B Preferred Stock, as to the payment
of dividends and as to the distribution of assets upon liquidation,
dissolution or winding up, if the holders of such class or series are
entitled to the receipt of dividends or amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in preference
or priority to the holders of Series B Preferred Stock ("Senior Stock");
(b) on a parity with the Series B Preferred Stock, as to
the payment of dividends and as to the distribution of assets upon
liquidation, dissolution or winding up, whether or not the dividend
rates, dividend payment dates or redemption or liquidation prices
per share thereof are different from those of the Series B Preferred
Stock, if the holders of such class or series and the Series B Preferred
Stock are entitled to the receipt of dividends and amounts distributable
upon liquidation, dissolution or winding up in proportion to their
respective amounts of accrued and unpaid dividends per share or
liquidation preferences, without preference or priority one over the
other ("Parity Stock");
and
(c) junior to the Series B Preferred Stock, as to the payment
of dividends or as to the distribution of assets upon liquidation, dissolution
or winding up, if such class or series is Common Stock or if the holders of
Series B Preferred Stock are entitled to the receipt of dividends or amounts
distributable upon liquidation, dissolution or winding up, as the case
may be, in preference or priority to the holders of shares of such
class or series ("Junior Stock").
<PAGE>
SECTION 9. VOTING.
(a) If and whenever (i) four quarterly dividends (whether or
not consecutive) payable on the Series B Preferred Stock or any series or
class of Parity Stock are in arrears (which shall, with respect to any such
quarterly dividend, mean that any such dividend has not been paid in full),
whether or not earned or declared, (ii) for four consecutive quarterly
dividend periods, the Corporation fails to pay dividends on the
Common Stock in an amount per share at least equal to $0.525 per share
(subject to adjustment consistent with any adjustment of the Conversion
Price pursuant to Section 7(d)) (the "Base Common Stock Dividend") or
(iii) the Corporation fails to satisfy the test set forth in Section 12(a),
then the number of directors then constituting the Board shall be
increased by two (or by three if the number of directors then constituting
the Board is more than 11 (without including any directors elected pursuant
to this Section 9(a) or similar types of provisions with respect to Voting
Preferred Stock (as defined below)) if not already increased by reason of
similar types of provisions with respect to Voting Preferred Stock) and
the holders of Series B Preferred Stock, together with the holders of
every other series or class of Parity Stock (any other such series, the
"Voting Preferred Stock"), voting as a single class regardless of series,
shall be entitled to elect the additional directors to serve on the Board
at any annual meeting of stockholders or a special meeting held in lieu
thereof, or at a special meeting of the holders of the Series B
Preferred Stock and the Voting Preferred Stock called as hereinafter
provided. Notwithstanding the preceding sentence, if fewer than 1,886,457
aggregate shares of the Series A Preferred Stock and Series B Preferred
Stock (which number shall be adjusted proportionately to reflect any
stock dividends, splits, reverse splits or combinations in the
Series A Preferred Stock and Series B Preferred Stock) remain outstanding,
and one or more of the conditions referred to in clauses (i) through
(iii) of the preceding sentence exists, then the number of directors then
constituting the Board shall be increased by only one (or by only two
if the number of directors then constituting the Board is more than 11
(without including any directors elected pursuant to this Section 9(a)
or similar types of provisions with respect to Voting Preferred Stock)
if not already increased by reason of similar types of provisions with
respect to Voting Preferred Stock) and the holders of Series B Preferred
Stock, together with the holders of every other series or class of Voting
Preferred Stock, voting as a single class regardless of series, shall be
entitled to elect the additional director(s) to serve on the Board at any
annual meeting of stockholders or a special meeting held in lieu thereof,
or at a special meeting of the holders of the Series B Preferred Stock
and the Voting Preferred Stock called as hereinafter provided. Whenever
(A) in the case of an arrearage in dividends described in clause (i),
all dividends in arrears on the Series B Preferred Stock and the Voting
Preferred Stock then outstanding have been paid and a sum sufficient for
the payment thereof has been set apart for payment of the dividend for
the current dividend for two consecutive quarterly dividend periods, (B)
in the case of an arrearage in dividends described in clause (ii), the
Corporation makes a quarterly dividend payment on the Common Stock in an
amount per share equal to or exceeding the Base Common Stock Dividend
for two consecutive quarterly dividend periods, or (C) in the case of a
failure described in clause (iii), the Corporation satisfies the test
set forth in Section 12(a) for two consecutive fiscal quarters, then
the right of the
<PAGE>
holders of the Series B Preferred Stock and the Voting Preferred Stock to
elect such additional directors shall cease (but subject always to the same
provision for the vesting of such voting rights in the case of any similar
future arrearages), and the terms of office of all Persons elected as
directors by the holders of the Series B Preferred Stock and the Voting
Preferred Stock shall forthwith terminate and the number of directors
constituting the Board shall be reduced accordingly. At any time after
such voting power have been so vested in the holders of Series B Preferred
Stock and the Voting Preferred Stock, if applicable, the Secretary of
the Corporation may, and upon the written request of any holder of
Series B Preferred Stock (addressed to the Secretary at the principal
office of the Corporation) shall, call a special meeting of the holders
of the Series B Preferred Stock and of the Voting Preferred Stock for
the election of the two directors to be elected by them as herein
provided, such call to be made by notice similar to that provided in the
Bylaws of the Corporation for a special meeting of the stockholders or
as required by law. If any such special meeting required to be called as
above provided shall not be called by the Secretary within 20 days after
receipt of any such request, then any holder of Series B Preferred Stock
may call such meeting, upon the notice above provided, and for that
purpose shall have access to the stock records of the Corporation. The
directors elected at such special meeting shall hold office until the next
annual meeting of the stockholders or special meeting held in lieu thereof
if such office has not previously terminated as provided above. If any
vacancy occurs among the directors elected by the holders of the Series B
Preferred Stock and the Voting Preferred Stock, a successor shall be
elected by the Board, upon the nomination of the then-remaining director
elected by the holders of the Series B Preferred Stock and the Voting
Preferred Stock or the successor of such remaining director, to serve
until the next annual meeting of the stockholders or special meeting
held in lieu thereof if such office has not previously terminated as
provided above.
(b) So long as any Series B Preferred Stock is outstanding,
in addition to any other vote or consent of stockholders required by law or
by the Charter of the Corporation, the affirmative vote of at least
two-thirds of the votes entitled to be cast by the holders of the Series B
Preferred Stock, given in person or by proxy, either in writing
without a meeting or by vote at any meeting called for the purpose, shall
be necessary for effecting or validating:
(i) Any amendment, alteration or repeal of any of the provisions
of these Articles Supplementary, the Charter or the By-Laws of the
Corporation which materially and adversely affects the voting powers,
rights or preferences of the holders of the Series B Preferred Stock;
provided, however, that the amendment of the provisions of the Charter
so as to authorize or create, or to increase the authorized amount of, any
Junior Stock or any class of Parity Stock shall not be deemed to materially
adversely affect the voting powers, rights or preferences of the holders of
Series B Preferred Stock;
or
<PAGE>
(ii) The authorization, reclassification or creation of, the increase
in the authorized amount of, or the issuance of, any class of Senior Stock or
any security convertible into any class of Senior Stock (whether or not such
class of Senior Stock is currently authorized); provided, however, that no
such vote of the holders of Series B Preferred Stock shall be required if,
at or prior to the time when such amendment, alteration or repeal is to
take effect, or when the issuance of any such Senior Stock or convertible
security is to be made, as the case may be, provision is made for the
redemption of all shares of Series B Preferred Stock at the time outstanding.
For purposes of the foregoing provisions and all other voting rights under
these Articles Supplementary, each share of Series B Preferred Stock shall
have one vote per share, except that when any other class or series of
preferred stock shall have the right to vote with the Series B Preferred
Stock as a single class on any matter, then the Series B Preferred Stock
and such other class or series shall have with respect to such matters
one vote per $100 of stated liquidation preference. Except as otherwise
required by applicable law or as set forth herein, the Series B Preferred
Stock shall not have any relative, participating, optional or other special
voting rights and powers other than as set forth herein, and the consent
of the holders thereof shall not be required for the taking of
any corporate action.
SECTION 10. RECORD HOLDERS. The Corporation and the Transfer
Agent may deem and treat the record holder of any share of Series B Preferred
Stock as the true and lawful owner thereof for all purposes, and neither
the Corporation nor the Transfer Agent shall be affected by any notice to
the contrary.
SECTION 11. OWNERSHIP RESTRICTIONS. The Series B Preferred
Stock shall be subject to the restrictions and limitations set forth in
Article Seventh of the Charter.
SECTION 12. FIXED CHARGE COVERAGE.
(a) So long as any of the shares of Series B Preferred Stock
are outstanding, if the Corporation or any subsidiary of the Corporation
shall issue any preferred securities of such entity or incur any additional
indebtedness for borrowed money and immediately following such issuance or
incurrence and after giving effect to such issuance or incurrence and the
application of the net proceeds therefrom, the Corporation's ratio of
aggregate Consolidated EBITDA to aggregate Consolidated Fixed Charges
for the four fiscal quarters immediately preceding such issuance would
be less than 1.5 to 1.0, the holders of the Series B Preferred Stock
shall have the rights provided in Section 9(a), unless the holders of at
least two-thirds of the shares of the Series B Preferred Stock then
outstanding consent to such issuance or incurrence.
<PAGE>
(b) "Consolidated EBITDA" for any period shall mean the consolidated
net income of the Corporation (before minority interest, extraordinary items
and other gains and losses) as reported in the Corporation's financial
statements filed with the Securities and Exchange Commission increased by
the sum of the following (without duplication):
(i) all income and state franchise taxes paid or accrued
according to generally accepted accounting principles ("GAAP") for such period
(other than income taxes attributable to extraordinary, unusual or non-
recurring gains or losses except to the extent that such gains were not
included in Consolidated EBITDA);
(ii) all interest expense paid or accrued in accordance with
GAAP for such period (including financing fees and amortization of deferred
financing fees and amortization of original issue discount);
(iii) depreciation and depletion reflected in such reported
net income;
(iv) amortization reflected in such reported net income
including, without limitation, amortization of capitalized debt issuance
costs (only to the extent that such amounts have not been previously included
in the amount of Consolidated EBITDA pursuant to clause (ii) above),
goodwill, other intangibles and management fees;
(v) the non-cash portion of ground rent payable by
the Corporation pursuant to that certain Lease dated as of December 31,
1990 between the Corporation and Teachers' Retirement System of the State
of Illinois, as amended, to the extent deducted from consolidated net income;
and
(vi) any other non-cash charges or discretionary prepayment
penalties, to the extent deducted from consolidated net income (including,
but not limited to, income allocated to minority interests).
(c) "Consolidated Fixed Charges" for any period means the sum of:
(i) all interest expense paid or accrued in accordance
with GAAP for such period (including financing fees and amortization of
deferred financing fees and amortization of original issue discount but
excluding non-cash interest expense on deferred ground rent);
<PAGE>
(ii) preferred stock dividend requirements for such period,
whether or not declared or paid; and
(iii) regularly scheduled amortization of principal during such
period (other than any balloon payments at maturity).
SECTION 13. SINKING FUND. The Series B Preferred Stock shall not be
entitled to the benefit of any retirement or sinking fund.
SECOND: The Series B Preferred Stock has been classified and
designated by the Board under the authority contained in Article Fifth of
the Charter.
THIRD: These Articles Supplementary have been approved by the
Board in the manner and by the vote required by law.
FOURTH: The undersigned Executive Vice President acknowledges these
Articles Supplementary to be the act of the Corporation and, as to all
other matters or facts required to be verified under oath, acknowledges
that to the best of his knowledge, information and belief, these matters
and facts are true in all material respects and that this
statement is made under the penalties for perjury.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused these Articles
Supplementary to be signed in its name and on its behalf by its Executive
Vice President and attested to by its Secretary on this 22nd day of December,
1998.
URBAN SHOPPING CENTERS, INC.
By: /s/ Adam S. Metz
------------------------------
Adam S. Metz
Executive Vice President
ATTEST:
/s/ Michael Hilborn
------------------------------
Michael Hilborn
Secretary
EXHIBIT 10.30
- -------------
URBAN SHOPPING CENTERS
DEFERRED CASH COMPENSATION PLAN
-------------------------------
(effective August 1, 1998)
<PAGE>
TABLE OF CONTENTS
SECTION 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . i
1.1. Background . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Purpose. . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3. Effective Date . . . . . . . . . . . . . . . . . . . . . 1
1.4. Operation and Administration . . . . . . . . . . . . . . 1
1.5. Plan Year. . . . . . . . . . . . . . . . . . . . . . . . 1
1.6. Applicable Law . . . . . . . . . . . . . . . . . . . . . 1
1.7. Gender and Number. . . . . . . . . . . . . . . . . . . . 2
1.8. Notices. . . . . . . . . . . . . . . . . . . . . . . . . 2
1.9. Form and Time of Elections . . . . . . . . . . . . . . . 2
1.10. Benefits Under Qualified Plans. . . . . . . . . . . . . 2
1.11. Evidence. . . . . . . . . . . . . . . . . . . . . . . . 2
1.12. Action by Affiliated Company. . . . . . . . . . . . . . 2
SECTION 2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Participation. . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1. Participant. . . . . . . . . . . . . . . . . . . . . . . 2
2.2. Plan Not Contract of Employment. . . . . . . . . . . . . 3
2.3. Restricted Participation . . . . . . . . . . . . . . . . 3
SECTION 3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Service. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.1. Year of Service. . . . . . . . . . . . . . . . . . . . . 3
3.2. Hour of Service. . . . . . . . . . . . . . . . . . . . . 4
SECTION 4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Participant Deferral Elections. . . . . . . . . . . . . . . . 4
4.1. Deferral Election. . . . . . . . . . . . . . . . . . . . 4
4.2. Revocation of Deferral Election and
Suspension of Participation. . . . . . . . . . . . . . . 7
4.3. Eligible Compensation and Bonus. . . . . . . . . . . . . 7
SECTION 5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Supplemental Employer-Provided Plan Benefit. . . . . . . . . . 7
5.1. Matching Account . . . . . . . . . . . . . . . . . . . . 7
5.2. Core Award Account . . . . . . . . . . . . . . . . . . . 8
<PAGE>
SECTION 6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Plan Accounting. . . . . . . . . . . . . . . . . . . . . . . . 8
6.1. Accounts . . . . . . . . . . . . . . . . . . . . . . . . 8
6.2. Adjustment of Accounts . . . . . . . . . . . . . . . . . 9
6.3. Crediting Under Deferral Election. . . . . . . . . . . . 9
6.4. Crediting of Matching Amounts. . . . . . . . . . . . . . 9
6.5. Crediting of Core Award Amounts. . . . . . . . . . . . . 9
6.6. Investment Benchmarks. . . . . . . . . . . . . . . . . . 9
6.7. Statement of Accounts. . . . . . . . . . . . . . . . . . 10
SECTION 7. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Payment of Account Balances. . . . . . . . . . . . . . . . . . 10
7.1. General. . . . . . . . . . . . . . . . . . . . . . . . . 10
7.2. Distribution Election. . . . . . . . . . . . . . . . . . 10
7.3. Determination of Vested Interest . . . . . . . . . . . . 10
7.4. Termination Date . . . . . . . . . . . . . . . . . . . . 11
7.5. Beneficiary. . . . . . . . . . . . . . . . . . . . . . . 11
7.6. Distributions to Disabled Persons. . . . . . . . . . . . 12
7.7. Benefits May Not be Assigned . . . . . . . . . . . . . . 12
7.8. Offset . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.9. Withdrawal Election. . . . . . . . . . . . . . . . . . . 12
SECTION 8. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Change in Control. . . . . . . . . . . . . . . . . . . . . . . 13
8.1. Distribution on Change in Control. . . . . . . . . . . . 13
8.2. Change in Control Definition . . . . . . . . . . . . . . 13
SECTION 9. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Source of Benefit Payments . . . . . . . . . . . . . . . . . . 14
9.1. Liability for Benefit Payments . . . . . . . . . . . . . 14
9.2. No Guarantee . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
10.1. Powers of Committee . . . . . . . . . . . . . . . . . . 15
10.2. Delegation by Committee . . . . . . . . . . . . . . . . 15
10.3. Information to be Furnished to Committee. . . . . . . . 15
10.4. Liability and Indemnification of Committee. . . . . . . 15
10.5. Action by Committee . . . . . . . . . . . . . . . . . . 15
SECTION 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Amendment and Termination. . . . . . . . . . . . . . . . . . . 16
<PAGE>
URBAN SHOPPING CENTERS
DEFERRED CASH COMPENSATION PLAN
-------------------------------
SECTION 1
---------
General
-------
1.1. BACKGROUND. Urban Shopping Centers, Inc., a Maryland
corporation (the "REIT"), is the general partner of Urban Shopping Centers,
L.P. (the "Partnership"), an Illinois limited partnership. The Partnership
indirectly owns substantially all of the preferred stock of Urban Retail
Properties Co. (the "Management Company"), a Delaware corporation. The
REIT, the Partnership, and the Management Company are each referred to
individually as an "Affiliated Company," and collectively as the
"Affiliated Companies."
1.2. PURPOSE. The Urban Shopping Centers Deferred Cash Compensation
Plan (the "Plan") has been established by the REIT so that it and each of
the Affiliated Companies which, with the consent of the REIT, adopts the
Plan, may provide eligible employees of the Affiliated Companies with an
opportunity to build additional financial security, thereby aiding such
companies in attracting and retaining employees of exceptional ability.
The Affiliated Companies, the employees of which participate in the Plan,
are referred to below, collectively, as the "Employers" and individually as
an "Employer."
1.3. EFFECTIVE DATE. The "Effective Date" of the Plan is August 1,
1998.
1.4. OPERATION AND ADMINISTRATION. Except as provided otherwise in
this subsection 1.4, the authority to control and manage the operation and
administration of the Plan shall be vested in a committee appointed by the
Board of Directors of the REIT (the "Committee"). In controlling and
managing the operation and administration of the Plan, the Committee shall
have the rights, powers and duties set forth in Section 10. Capitalized
terms in the Plan shall be defined as set forth in the Plan.
1.5. PLAN YEAR. The term "Plan Year" means the calendar year;
provided that the first Plan Year shall be the period beginning on the
Effective Date and ending December 31, 1998.
1.6. APPLICABLE LAW. The Plan shall be construed and administered
in accordance with the laws of the State of Illinois to the extent that
such laws are not preempted by the laws of the United States of America.
<PAGE>
1.7. GENDER AND NUMBER. Where the context admits, words in any
gender shall include any other gender, words in the singular shall include
the plural and the plural shall include the singular.
1.8. NOTICES. Any notice or document required to be filed with the
Committee under the Plan will be properly filed if delivered or mailed to
the Committee, in care of the REIT, at its principal executive offices.
The Committee may, by advance written notice to affected persons, revise
such notice procedure from time to time. Any notice required under the
Plan may be waived by the person entitled to notice.
1.9. FORM AND TIME OF ELECTIONS. Unless otherwise specified herein,
each election required or permitted to be made by any Participant or other
person entitled to benefits under the Plan, and any permitted modification
or revocation thereof, shall be in writing filed at such times, in such
form, and subject to such restrictions and limitations as the Committee
shall require.
1.10. BENEFITS UNDER QUALIFIED PLANS. Compensation of any
Participant that is deferred under the Plan, and benefits payable under the
Plan, shall be disregarded for purposes of determining the benefits under
any plan that is intended to be qualified under section 401(a) of the
Internal Revenue Code of 1986.
1.11. EVIDENCE. Evidence required of anyone under the Plan may be
by certificate, affidavit, document or other information which the person
acting on it considers pertinent and reliable, and signed, made or
presented by the proper party or parties.
1.12. ACTION BY AFFILIATED COMPANY. Any action required or
permitted to be taken by an Affiliated Company which is a corporation shall
be by resolution of its board of directors or by a duly authorized officer
of such company. Any action required or permitted to be taken by an
unincorporated Affiliated Company under the Plan shall be made by writing
adopted or executed by its authorized partner or sole proprietor or by a
person or persons authorized in writing by its authorized partner or sole
proprietor.
SECTION 2
---------
Participation
-------------
2.1. PARTICIPANT. Subject to the terms of the Plan, each employee
of an Employer shall become a Participant in the Plan on the first day of
the first calendar quarter coincident with or following the Effective Date
on which he meets each of the following requirements:
(a) he has completed one Year of Service (as defined in subsection
3.1);
(b) he is a "Highly-Compensated Employee;" and
<PAGE>
(c) he is not a member of a collective bargaining unit, unless the
Plan has been extended to the collective bargaining unit under a currently
effective collective bargaining agreement.
An employee shall be a "Highly Compensated Employee" for any Plan Year if
he (i) was a 5-percent owner (as defined in section 414(q)(2) of the
Internal Revenue Code of 1986, as amended (the "Code")) of an Affiliated
Company at any time during the Plan Year or the preceding Plan Year, or
(ii) for the preceding Plan Year, he had compensation from an Affiliated
Company in excess of $80,000 (indexed for cost-of-living adjustments under
section 415(d), in accordance with section 414(q)(1)). For purposes of
determining whether an individual is "Highly Compensated" under this
section 2.1, "compensation" shall be determined in accordance with section
414(q)(4) of the Code. Notwithstanding the foregoing provisions of this
subsection 2.1, if an individual is employed or reemployed by an Employer
on or after the first day of the quarter coincident with or next following
the date on which he first meets the requirements of paragraphs (a), (b)
and (c) above, he shall become a Participant in the Plan immediately upon
meeting the requirements of paragraph (b) and paragraph (c) above, if he
then has credit for at least one Year of Service.
2.2. PLAN NOT CONTRACT OF EMPLOYMENT. The Plan does not constitute
a contract of employment, and participation in the Plan will not give any
employee the right to be retained in the employ of any Employer nor any
right or claim to any benefit under the Plan, unless such right or claim
has specifically accrued under the terms of the Plan.
2.3. RESTRICTED PARTICIPATION. Notwithstanding any other provision
of the Plan to the contrary, if the Committee determines that participation
by one or more Participants (or payment of benefits to any Beneficiary)
shall cause the Plan as applied to any Affiliated Company to be subject to
Part 2, 3 or 4 of Title I of the Employee Retirement Income Security Act of
1974, as amended, all vested Accounts of such Participant under the Plan
shall be, in the discretion of the Committee, immediately paid to such
Participant (or Beneficiary, if applicable), or shall otherwise be
segregated from the Plan, and such Participant(s) (or Beneficiary(ies))
shall cease to have any interest under the Plan.
SECTION 3
---------
Service
-------
3.1. YEAR OF SERVICE. For purposes of subsection 2.1, the term
"Year of Service" means, with respect to any individual, each 12-
consecutive month period beginning on the date on which the individual
first completes an Hour of Service and subsequent anniversaries thereof,
during which the individual completes at least 1,000 Hours of Service (as
defined in subsection 3.2).
<PAGE>
3.2. HOUR OF SERVICE. The term "Hour of Service" means, with
respect to any individual:
(a) each hour for which he is paid or entitled to payment for the
performance of duties for an Affiliated Company;
(b) each hour for which back pay, irrespective of mitigation of
damages, has been awarded to the individual or agreed to by an Affiliated
Company; and
(c) each hour for which he is directly or indirectly paid or
entitled to payment by an Affiliated Company during any period of time for
which he performs no duties for the Affiliated Company (irrespective of
whether the employment relationship has terminated) by reason of a
vacation, holiday, illness, incapacity (including disability), layoff, jury
duty, military duty or leave of absence; provided, however, that:
(i) he shall be credited with 8 Hours of Service per day (up
to a maximum of 40 Hours of Service per week) for any period during which
he performs no duties for an Affiliated Company;
(ii) he shall not be credited with more than 501 Hours of
Service for any single continuous period during which he performs no duties
for an Affiliated Company; and
(iii) payments considered for this purpose shall include
payments unrelated to the length of the period during which no duties are
performed but shall not include payments made solely as reimbursement for
medically-related expenses or solely for the purpose of complying with
applicable workmen's compensation, unemployment compensation or disability
insurance laws.
SECTION 4
---------
Participant Deferral Elections
-------------------------------
4.1. DEFERRAL ELECTION. A Participant may elect to defer payment of
all or a portion of his or her Eligible Compensation and Bonus pursuant to
the terms of a separate "Deferral Election" with respect to such Eligible
Compensation or Bonus. A Participant's Deferral Election shall be subject
to the following:
(a) An individual who, prior to the beginning of any Plan Year
satisfies, or who as of the first day of the Plan Year will have satisfied,
the requirements of Subsection 2.1 shall be eligible to file a Deferral
Election with respect to his Eligible Compensation (as defined in
subsection 4.3) for that
<PAGE>
Plan Year. Such Deferral Election shall be filed during the
"Eligible Compensation Annual Election Period" applicable to such Plan
Year. The "Eligible Compensation Annual Election Period" for a given Plan
Year shall be the period beginning on December 1 and ending on December 15
of the Plan Year immediately preceding the Plan Year to which the election
applies; provided that, for the Plan Year beginning on the Effective Date
and ending on December 31, 1998, the "Eligible Compensation Annual Election
Period" shall be the period beginning on July 9, 1998 and ending on July
31, 1998. Such Deferral Election for a Plan Year shall be at a percentage
rate (in whole multiples of one percent) of not less than 2 percent and not
more than 25 percent of the Participant's Eligible Compensation for the
Plan Year.
(b) An individual who prior to the beginning of any Plan Year
satisfies, or who as of the first day of the Plan Year will have satisfied,
the requirements of subsection 2.1 shall be eligible to file a Deferral
Election with respect to his Bonus (as defined in subsection 4.3) for that
Plan Year. Such Deferral Election shall be filed during the "Bonus Annual
Election Period" applicable to such Plan Year. The "Bonus Annual Election
Period" for a given Plan Year shall be the period beginning on June 15 and
ending on June 30 of the Plan Year preceding the Plan Year to which the
election applies; provided that for the Plan Year beginning on January 1,
1999, the "Bonus Annual Election Period" shall be the period beginning on
July 9, 1998 and ending on July 31, 1998. Such Deferral Election for a
Plan Year shall be at a percentage rate (in whole multiples of one percent)
of not less than 2 percent and not more than 100 percent of the
Participant's Bonus for the Plan Year or shall be for a specified dollar
amount, but not less than $2,500; provided that if the dollar amount
elected is greater than the amount of the Bonus, then the Deferral Election
shall be limited to 100 percent of the Participant's Bonus for the Plan
Year.
(c) An individual who, as of the beginning of any Plan Year, has
not satisfied the requirements of a Participant for the Plan Year, but who
becomes a Participant during the Plan Year, shall be eligible to file a
Deferral Election with respect to his Eligible Compensation and Bonus for
that Plan Year, subject to the limits of paragraph 4.1(e). Such Deferral
Election shall be filed within thirty days (or such shorter period as may
be specified by the Committee) after he first becomes a Participant for the
year.
(d) If the Plan first becomes effective with respect to the
employees of any Employer during any Plan Year, and an employee of that
Employer becomes a Participant on the date the Plan becomes effective, such
employee shall be eligible to file a Deferral Election with respect to
Eligible Compensation and Bonus for that Plan Year, subject to the limits
of paragraph 4.1(e). Such Deferral Election shall be filed within thirty
days (or such shorter period as may be specified by the Committee) after
the date the Plan becomes effective.
<PAGE>
(e) To the extent elected by a Participant, and subject to the
terms of the Plan, a Participant's Deferral Election for Eligible
Compensation and Bonus with respect to any Plan Year shall apply to his
Eligible Compensation and Bonus for that Plan Year and shall remain in
effect for any subsequent Plan Year, unless a Participant files a new
Deferral Election in accordance with paragraphs 4.1(a) or 4.1(b) as
applicable, discontinues participation in accordance with subsection 4.2,
or is no longer an employee of an Employer. The terms of a Deferral
Election shall be subject to any conditions and limitations that may be
imposed by the Committee. Except as otherwise provided in this subsection
4.1 or in subsection 4.2, a Deferral Election shall be irrevocable for the
Plan Year to which it applies. In no event may a Deferral Election cover
Eligible Compensation or Bonus earned prior to the date the election is
completed and filed in accordance with the Plan.
(f) Each Deferral Election shall be automatically revoked as of the
date on which a Change in Control, as defined in subsection 8.2, occurs,
and no new Deferral Election shall be accepted for any date after the date
of a Change in Control.
(g) Subject to the terms of the Plan, the Participant shall
specify, as part of his Deferral Election, and in accordance with
subsection 7.2, the date on which amounts which may become payable from the
Plan shall become distributable. A Participant may defer payment until (i)
his or her Termination Date or (ii) the first day of the calendar year next
following his or her Termination Date. Any election with respect to the
time of payment shall apply to all amounts payable under the Plan and shall
remain in effect until superseded by a subsequent election, made during a
subsequent Eligible Compensation Annual Election Period or Bonus Annual
Election Period. Any such change in election with respect to the time of
payment shall not be effective until the first day of the second Plan Year
after the Annual Election Period in which it is made.
(h) Subject to the terms of the Plan, the Participant shall
specify, as part of his Deferral Election, and in accordance with
subsection 7.2, the method of distribution of amounts which may become
payable from the Plan. The Participant may elect a payment in the form of
a single lump sum or in the form of annual installments over a period not
to exceed ten years. Any election with respect to the method of payment
shall apply to all amounts payable under the Plan and shall remain in
effect until superseded by a subsequent election, made during a subsequent
Eligible Compensation Annual Election Period or Bonus Annual Election
Period. Any such change in election with respect to the form of payment
shall not be effective until the first day of the second Plan Year after
the Annual Election Period in which it is made.
<PAGE>
4.2. REVOCATION OF DEFERRAL ELECTION AND SUSPENSION OF
PARTICIPATION. A Participant may revoke his Deferral Election with
respect to his Eligible Compensation or may revoke his Deferral Election
with respect to his Bonus for any Plan Year by notifying the Committee of
such revocation in writing, in such form and at such time as the Committee
may require. Upon any such revocation, no further deferrals will be made
from the Participant's Eligible Compensation or Bonus, whichever is
applicable, for that Plan Year. A Participant who has revoked his Deferral
Election with respect to Eligible Compensation during a Plan Year may not
again defer the receipt of Eligible Compensation, and a Participant who has
revoked his Deferral Election with respect to his Bonus during a Plan Year
may not again defer the receipt of Bonus, until the next following Plan
Year, by filing the applicable Deferral Election with the Committee in
accordance with the requirements of subsection 4.1; provided, that he will
be eligible to defer the receipt of Eligible Compensation or Bonus during
the next such Plan Year only if he is then eligible to participate in the
Plan accordance with subsection 2.1 on the first day of such Plan Year.
4.3. ELIGIBLE COMPENSATION AND BONUS. For purposes of the Plan, a
Participant's "Eligible Compensation" from any Employer for any period
means compensation otherwise payable to him by the Employer which is
reported on the Participant's Form W-2, Wage and Tax Statement for federal
income tax purposes, decreased by the amount of any bonuses, overtime, or
other special allowances otherwise included in such compensation and
increased by the amount that such compensation is reduced pursuant to a
salary reduction agreement under a qualified profit sharing plan maintained
by the Employer that meets the requirements of section 401(k) of the Code
or under a cafeteria plan that is maintained by the Employer that meets the
requirements of section 125 of the Code. "Bonus" for any period means the
cash bonus otherwise payable to a Participant by the Employer.
Notwithstanding the foregoing, the amount of Eligible Compensation plus
Bonus from all Employers taken into account for determining the amount
credited to a Participant's Core Award Account in a Plan Year in accordance
with subsection 5.2 shall not exceed $160,000 in any Plan Year, or such
other amount which, if the Plan were a tax-qualified retirement plan under
section 401(a) of the Code, would apply to the Plan for such Plan Year
under section 401(a)(17) of the Code and applicable United States treasury
regulations thereunder.
SECTION 5
---------
Supplemental Employer-Provided Plan Benefit
-------------------------------------------
5.1. MATCHING ACCOUNT. For each Plan Year, each Employer shall
credit to a "Matching Account" established on behalf of each Participant
employed by such Employer an amount equal to the lesser of (i) 10 percent
of that portion of the amount deferred under the Participant's Deferral
Election made with respect to such Participant's Eligible Compensation and
<PAGE>
Bonus for such Plan Year or (ii) $1,000; provided that if the limit on
elective deferrals under cash or deferred arrangements under section
402(g)(1) of the Code and applicable United States treasury regulations
thereunder (the "402(g) Limit") is adjusted in any Plan Year, then the
$1,000 limit in clause (ii) shall be adjusted to be 10 percent of the
402(g) Limit for the Plan Year. Notwithstanding the foregoing, for the
Plan Year beginning on the Effective Date and ending on December 31, 1998,
the amount credited to a Participant's Matching Account in accordance with
this subsection 5.1 shall be the lesser of (i) 10 percent of that portion
of the amount deferred under the Participant's Deferral Election made with
respect to such Participant's Eligible Compensation and Bonus for such Plan
Year or (ii) $480.
5.2. CORE AWARD ACCOUNT. For each Plan Year, each Employer shall
credit to a "Core Award Account" established on behalf of each Participant
employed by such Employer an amount, if any, equal to the percentage of
such Participant's Eligible Compensation and Bonus, which is the same
percentage of compensation contributed by such Employer as a core award on
behalf of its employees under the JMB Realty Corporation Employees' Savings
Plan for such Plan Year; provided that a Participant's Core Award Account
will be credited in accordance with the foregoing provisions of this
subsection 5.2 only if such Participant has completed at least 1,000 Hours
of Service in such Plan Year and fulfills at least one of the following
requirements:
(a) he is employed by an Affiliated Company on the last day of the
Plan Year;
(b) he died during the Plan Year while in the employ of an
Affiliated Company; or
(c) he attained at least age 55 year in the Plan Year while in the
employ of an Affiliated Company.
SECTION 6
---------
Plan Accounting
---------------
6.1. ACCOUNTS. The Committee shall establish the following Accounts
for each Participant which will reflect the amounts to which the
Participant may become entitled under the Plan, and such Accounts shall be
adjusted in accordance with subsection 6.2. If a Participant's Bonus or
Eligible Compensation, which is subject to deferral under Section 4 or
which is the basis for crediting supplemental amounts under Section 5,
would otherwise be payable from more than one Employer, a separate Account,
as applicable to the type of deferral or supplemental amount, shall be
established for the Participant with respect to the Eligible Compensation
or Bonus from each such Employer:
(a) a "Deferral Account" reflecting any deferred Eligible
Compensation and Bonus credited to the Account in accordance with
subsection 6.3;
(b) a "Matching Account" reflecting the amount of any matching
amounts attributable to deferred Eligible Compensation and Bonus credited
to the Account in accordance with subsection 6.4; and
(c) a "Core Award Account" reflecting the amount of any
discretionary core award amounts credited to the Account in accordance with
subsection 6.5.
<PAGE>
6.2. ADJUSTMENT OF ACCOUNTS. Each Account shall be adjusted in
accordance with this Section 6 in a uniform manner as of such periodic
"Accounting Dates" as may be determined by the Committee from time to time
(which Accounting Dates shall be not less frequent than quarterly). The
date of a Change in Control shall be an Accounting Date. As of each
Accounting Date, the balance of each Account shall be adjusted as follows:
(a) FIRST, credit to the Account balance the amount to be credited
to that Account in accordance with subsection 6.3. 6.4. or 6.5, as
applicable to that Account, that has not previously been credited;
(b) THEN, adjust the Account balance to reflect the gain or loss
that would have been experienced if the Account had been invested in the
applicable Investment Benchmark as described in subsection 6.6; and
(c) THEN, charge to the Account balance the amount of any
distributions or withdrawals under the Plan with respect to that Account
that have not previously been charged.
6.3. CREDITING UNDER DEFERRAL ELECTION. The balance of a
Participant's Deferral Account for any period shall be credited, in
accordance with the provisions of paragraph 6.2(a), with the amount by
which his or her Eligible Compensation for that period is reduced pursuant
to a Deferral Election and the amount by which his or her Bonus for that
period is reduced pursuant to a Deferral Election. Such crediting shall
occur as of the date on which such Eligible Compensation or Bonus, as
applicable, would otherwise have been paid to the Participant by the
Employer were it not for the reduction made pursuant to the applicable
Deferral Election or, if such date is not an Accounting Date, as of the
first Accounting Date occurring thereafter.
6.4. CREDITING OF MATCHING AMOUNTS. The amount to which a
Participant may become entitled under section 5.1 as a matching amount
attributable to the Participant's Eligible Compensation Deferral Election
or Bonus Deferral Election shall be credited to the Participant's Matching
Account on the same Accounting Date as the amounts attributable to the
Participant's applicable Deferral Elections are credited to the
Participant's Deferral Account, as determined in accordance with subsection
6.3.
6.5. CREDITING OF CORE AWARD AMOUNTS. The amount to which a
Participant may become entitled under section 5.2 as a core award amount
shall be credited to the Participant's Core Award Account on the Accounting
Date coincident with or next following the last day of the Plan Year.
6.6. INVESTMENT BENCHMARKS From time to time the Committee shall
designate one or more "Investment Benchmarks" (such as money market funds,
bond funds, and common stock funds) which shall be used for purposes of
determining the amount of hypothetical earnings (or losses, as applicable)
<PAGE>
that may be credited to Participants' Accounts. Prior to each accounting
period, and in accordance with such rules as are established by the
Committee, a Participant shall select the Investment Benchmark(s) which
shall be used for purposes of adjusting his Account balances for such
period in accordance with paragraph 6.2(b). Subject to paragraph (d) of
Section 11, the Committee may modify the Investment Benchmarks available at
any time; provided, however, that the Committee may not retroactively
eliminate an Investment Benchmark.
6.7. STATEMENT OF ACCOUNTS. As soon as practicable after the end of
each Plan Year, and at such other times as determined by the Committee, the
Committee shall provide each Participant having one or more Accounts under
the Plan with a statement of the transactions in his or her Accounts during
that year and his or her Account balances as of the end of the year.
6.8. TAX WITHHOLDING. For each Plan Year in which a Participant
elects to defer payment of a Bonus or Eligible Compensation, the Employer
of the Participant shall withhold from that portion of the Participant's
Eligible Compensation, Bonus and other compensation that is not being
deferred and is otherwise payable to the Participant, in a manner
determined by the Employer, the Participant's share of FICA and other
employment taxes on such deferred Bonus and Eligible Compensation. If
necessary, the Committee may reduce the amount of the Bonus and Eligible
Compensation to be deferred in order to comply with this section 6.8. All
distributions made to a Participant pursuant to Section 7 are subject to
withholding of all applicable taxes.
SECTION 7
---------
Payment of Account Balances
---------------------------
7.1. GENERAL. Subject to this Section 7 and Section 8 (relating to
Change in Control), a Participant's Accounts shall be distributed in
accordance with the Participant's Deferral Election as soon as practicable
following the date on which the distribution is to be made. If a
Participant has not elected a form of payment, or such election is
ineffective because it does not comply with the requirement of Section 4
and this Section 7, then distribution of the Participant's Accounts shall
be made in the form of a lump sum payment. Likewise, if a Participant has
not elected a time of payment, or such election is ineffective because it
does not comply with the requirement of Section 4 and this Section 7, then
payment shall be made to the Participant as soon as practicable following
the Participant's Termination Date.
7.2. DISTRIBUTION ELECTION. A Participant's Deferral Election shall
specify the manner (including the time and form of distribution) in which
the Participant's Accounts shall be distributed, subject to such
restrictions and limitations as may be imposed by the Committee.
7.3. DETERMINATION OF VESTED INTEREST. A Participant shall at all
times have a nonforfeitable interest in his or her Accounts under the Plan.
<PAGE>
7.4. TERMINATION DATE. A Participant's "Termination Date" shall be
the date on which the first of the following events occurs:
(a) RETIREMENT. The Participant retires or is retired from the
employ of the Affiliated Companies on or after the first day of the month
coincident with or next following the date on which he attains age 55
years.
(b) DISABILITY RETIREMENT. The Participant retires or is retired
from the employ of the Affiliated Companies at any age because of permanent
disability. A Participant will be considered permanently disabled for
purposes of the Plan if, on account of physical or mental disability, he is
no longer capable of performing the duties assigned to him by any
Affiliated Company and in the opinion of a physician selected by the
Committee, such disability is likely to be permanent and continuous during
the remainder of the Participant's lifetime.
(c) DEATH. The Participant's death.
(d) RESIGNATION OR DISMISSAL. The Participant resigns or is
dismissed from the employ of the Affiliated Companies before retirement in
accordance with paragraphs (a) or (b) above.
7.5. BENEFICIARY. Subject to the terms of the Plan, any benefits
payable to a Participant under the Plan that have not been paid at the time
of the Participant's death shall be paid at the time and in the form
determined in accordance with the foregoing provisions of the Plan, to the
Participant's Beneficiary. The term "Beneficiary" shall mean the
Participant's surviving spouse. However, if the Participant is not
married, or if the Participant is married but his spouse consents to the
designation of a person other than the spouse, the term Beneficiary shall
mean such person or persons as the Participant designates to receive of his
Accounts upon his death. Such designation may be made, revoked or changed
(without the consent of any previously-designated Beneficiary except his
spouse) only by an instrument signed by the Participant and received by the
Committee prior to his death. A spouse's consent to the designation of a
Beneficiary other than the spouse shall be in writing, shall acknowledge
the effect of such designation, shall be witnessed by a Plan representative
or a notary public and shall be effective only with respect to such
consenting spouse. For purposes of the Plan, "spouse" means the person to
whom the Participant is legally married at the relevant time.
Notwithstanding the foregoing provisions of this subsection 7.5, no spousal
consent to the designation of a person other than, or in addition to, the
spouse as Beneficiary shall be required if (i) the Participant and his
spouse are legally separated or the Participant has been abandoned (under
applicable state law) and the Participant has a court order to that effect
or (ii) it is established to the satisfaction of the Committee that the
spouse's consent cannot be obtained because there is no spouse, because the
spouse cannot be located or because of such other circumstances (as may be
prescribed in Treasury regulations under Code section 401(a)(11)) in
writing filed with the Committee in such form and at such time as the
Committee shall require. If a deceased Participant failed to designate a
<PAGE>
beneficiary, or if the designated Beneficiary of a deceased Participant
dies before him or before complete payment of the Participant's benefits,
the amounts shall be paid to the legal representative or representatives of
the estate of the last to die of the Participant and his or her designated
Beneficiary.
7.6. DISTRIBUTIONS TO DISABLED PERSONS. Notwithstanding the
provisions of this Section 7, if, in the Committee's opinion, a Participant
or Beneficiary is under a legal disability or is in any way incapacitated
so as to be unable to manage his or her financial affairs, the Committee
may direct that payment be made to a relative or friend of such person for
his or her benefit until claim is made by a conservator or other person
legally charged with the care of his or her person or his or her estate,
and such payment shall be in lieu of any such payment to such Participant
or Beneficiary. Thereafter, any benefits under the Plan to which such
Participant or Beneficiary is entitled shall be paid to such conservator or
other person legally charged with the care of his or her person or his or
her estate.
7.7. BENEFITS MAY NOT BE ASSIGNED. Neither the Participant nor any
other person shall have any voluntary or involuntary right to commute,
sell, assign, pledge, anticipate, mortgage or otherwise encumber, transfer,
hypothecate or convey in advance of actual receipt of the amounts, if any,
payable hereunder, or any part hereof, which are expressly declared to be
unassignable and non-transferable. No part of the amounts payable shall
be, prior to actual payment, subject to seizure or sequestration for
payment of any debts, judgements, alimony or separate maintenance owed by
the Participant or any other person, or be transferred by operation of law
in the event of the Participant's or any other person's bankruptcy or
insolvency.
7.8. OFFSET. Notwithstanding the provisions of subsection 7.7, if,
at the time payments are to be made under the Plan, the Participant or
Beneficiary or both are indebted or obligated to any Affiliated Company,
then the payments remaining to be made to the Participant or the
Beneficiary or both may, at the discretion of the Committee, be reduced by
the amount of such indebtedness, or obligation, provided, however, that an
election by the Committee not to reduce any such payment shall not
constitute a waiver of the claim for such indebtedness or obligation.
7.9. WITHDRAWAL ELECTION. Subject to the requirements of this
subsection 7.9, a Participant may elect, at any time, to withdraw all or
any portion of his or her vested Accounts, less a withdrawal penalty equal
to 10 percent of such amount (the net amount shall be referred to as the
"Withdrawal Amount"). The Participant shall make this election by giving
the Committee advance written notice of the withdrawal election in a form
determined from time to time by the Committee. The Participant shall be
paid the Withdrawal Amount within 60 days of his or her election. The
minimum amount of any such Withdrawal Amount shall be $9,000 ($10,000 prior
to the 10 percent penalty). Once the Withdrawal Amount is paid, the
Participant shall not be eligible to make any further Deferral Elections
with respect to either Bonus or Eligible Compensation under the Plan until
at least twelve months after the date on which the Withdrawal Amount is
paid; provided that such subsequent Deferral Election shall be effective
only if it is made during the applicable Annual Election Period commencing
<PAGE>
immediately prior to the Plan Year in which the Deferral Election is to
take effect. For example, if a Participant is paid a Withdrawal Amount on
April 20, 1999, then deferral of Eligible Compensation may not resume until
April 20, 2000; such deferral will resume as of that date only if the
Participant has made the appropriate election under subsection 4.1(a)
during the Eligible Compensation Annual Election Period beginning on
December 1, 1999 and ending on December 15, 1999. Similarly, as a result
of the payment of the Withdrawal Amount on April 20, 1999, no portion of
any Bonus payable to the Participant during the period beginning on April
20, 1999 and ending on April 19, 2000 may be deferred, and any Bonus to be
paid during the 2000 Plan Year on or after April 20, 2000 may be deferred
only if the Participant has made the appropriate election under subsection
4.1(b) during the Bonus Annual Election Period beginning on June 15, 1999
and ending on June 30, 1999.
SECTION 8
---------
Change in Control
-----------------
8.1. DISTRIBUTION ON CHANGE IN CONTROL. Each Deferral Election
shall be automatically revoked as of the date on which a Change in Control
occurs, no new Deferral Election shall be accepted for any date after the
date of a Change in Control, and no supplemental amounts will be credited
to a Participant's Account under Section 5 after the date of a Change in
Control. Notwithstanding the foregoing, core award amounts attributable to
Eligible Compensation and Bonus payable to a Participant for that portion
of the Plan Year ending on the date of the Change in Control, which core
award amount would, but for the Change in Control, have been credited to
the Participant's Core Award Account under subsection 6.5 as of the
Accounting Date coincident with or next following the last day of the Plan
Year, shall be credited to the Participant's Core Award Account as of the
Accounting Date coincident with the date of the Change in Control as if
such Accounting Date were the last day of the Plan Year. Upon the
occurrence of a Change in Control, each Participant or, if applicable, the
Beneficiary designated by the Participant shall receive a lump sum
distribution equal to the Participant's Account balances determined as of
the Accounting Date coincident with the date of the Change in Control
(after all adjustments then required by the Plan have been made). Such
distributions shall be made to Participants regardless of any elections
that may otherwise be applicable to them under the Plan, and shall be made
as soon as practicable after the date of such Change in Control, but in no
event later than 60 days after the occurrence of such Change in Control.
Payments under this subsection 8.1 shall be in lieu of any amounts that
would otherwise be payable after the date as of which the Participant's
Account balance is determined for purposes of payment under this
subsection.
8.2. CHANGE IN CONTROL DEFINITION. For purposes of the Plan, the
term "Change in Control" means the first to occur of the following events:
<PAGE>
(a) any person or group of commonly controlled persons other than
JMB Realty Corporation or any of its affiliated or associated entities owns
or controls, directly or indirectly, fifty percent (50%) or more of the
voting control or value of the capital stock of the REIT; or
(b) any person or group of commonly controlled persons other than
JMB Realty Corporation or any of its affiliated or associated entities owns
or controls, directly or indirectly, twenty percent (20%) or more of the
voting control or value of the capital stock of the REIT and such ownership
or control percentage is greater than the then ownership or control
percentage of JMB Realty Corporation and all of its affiliated or
associated entities.
SECTION 9
---------
Source of Benefit Payments
--------------------------
9.1. LIABILITY FOR BENEFIT PAYMENTS. Subject to the provisions of
this Section 9, the Affiliated Company that is the Employer of a
Participant shall be liable for payment of benefits under the Plan with
respect to any Participant to the extent that such benefits are
attributable to the deferral of compensation or supplemental benefits based
on compensation otherwise payable by that Employer to the Participant. Any
disputes relating to liability of an Affiliated Company for benefit
payments shall be resolved by the Committee. The amount of any benefit
payable under the Plan will be paid from the general assets of the
applicable Employer or from one or more trusts, the assets of which are
subject to the claims of the applicable Employer's general creditors. Such
amounts payable shall be reflected on the accounting records of the
Employer but shall not be construed to create, or require the creation of,
a trust, custodial or escrow account.
9.2. NO GUARANTEE. Neither a Participant nor any other person
shall, by reason of the Plan, acquire any right in or title to any assets,
funds or property of any of the Affiliated Companies whatsoever, including,
without limitation, any specific funds, assets, or other property which the
Affiliated Companies in their sole discretion, may set aside in
anticipation of a liability under the Plan. A Participant shall have only
a contractual right to the amounts, if any, payable under the Plan,
unsecured by any assets of any of the Affiliated Companies. Nothing
contained in the Plan shall constitute a guarantee by any of the Affiliated
Companies that the assets of the Affiliated Companies shall be sufficient
to pay any benefits to any person. Neither a Participant or Beneficiary of
a Participant shall acquire any interest greater than that of an unsecured
creditor.
<PAGE>
SECTION 10
----------
Committee
---------
10.1. POWERS OF COMMITTEE. Responsibility for the day-to-day
administration of the Plan shall be vested in such persons as the Committee
designates. The authority to control and manage all other aspects of the
operation and administration of the Plan shall be vested in the Committee.
The Committee is authorized to interpret the Plan, to establish, amend, and
rescind any rules and regulations relating to the Plan, to determine the
terms and provisions of any agreements made pursuant to the Plan, and to
make all other determinations that may be necessary or advisable for the
administration of the Plan. Except as otherwise specifically provided by
the Plan, any determinations to be made by the Committee under the Plan
shall be decided by the Committee in its sole discretion. Any
interpretation of the Plan by the Committee and any decision made by it
under the Plan is final and binding on all persons.
10.2. DELEGATION BY COMMITTEE. The Committee may allocate all or any
portion of its responsibilities and powers to any one or more of its
members and may delegate all or any part of its responsibilities and powers
to any person or persons selected by it. Any such allocation or delegation
may be revoked by the Committee at any time.
10.3. INFORMATION TO BE FURNISHED TO COMMITTEE. The Affiliated
Companies shall furnish the Committee with such data and information as may
be required for it to discharge its duties. The records of the Affiliated
Companies as to an employee's or Participant's employment, termination of
employment, leave of absence, reemployment and compensation shall be
conclusive on all persons unless determined to be incorrect. Participants
and other persons entitled to benefits under the Plan must furnish the
Committee such evidence, data or information as the Committee considers
desirable to carry out the Plan.
10.4. LIABILITY AND INDEMNIFICATION OF COMMITTEE. The Committee,
the individual members thereof, and persons acting as the authorized
delegates of the Committee under the Plan, shall be indemnified by the
Affiliated Companies against any and all liabilities, losses, costs and
expenses (including legal fees and expenses) of whatsoever kind and nature
which may be imposed on, incurred by or asserted against the Committee or
its members or authorized delegates by reason of the performance of a
Committee function if the Committee or its members or authorized delegates
did not act dishonestly or in willful violation of the law or regulation
under which such liability, loss, cost or expense arises. This
indemnification shall not duplicate but may supplement any coverage
available under any applicable insurance.
10.5. ACTION BY COMMITTEE. All actions of the Committee shall be
taken by majority vote of its members or by unanimous written consent. The
determination of the Committee on matters within its authority shall be
final, conclusive and binding on the Affiliated Companies and all other
persons.
<PAGE>
SECTION 11
----------
Amendment and Termination
-------------------------
The Board of Directors of the REIT may, at any time, amend or
terminate the Plan, subject to the following:
(a) Subject to the following provisions of this Section 11, no
amendment or termination may materially adversely affect the rights of any
Participant or Beneficiary under the Plan.
(b) The Committee may revoke Participants' rights to defer Eligible
Compensation or Bonus and to be credited with supplemental benefits under
the Plan.
(c) The Plan may not be amended to delay the date on which benefits
are otherwise payable under the Plan without the consent of each affected
Participant. The Committee may amend the Plan to accelerate the date on
which Plan benefits are otherwise payable under the Plan and eliminate all
future deferrals and supplemental benefits under the Plan, thereby
terminating the Plan.
(d) The Committee may modify or eliminate any Investment Benchmark
alternative, except that any such modification or elimination may not
modify or eliminate the Investment Benchmark with respect to periods prior
to the adoption of the amendment; provided that in all events, Investment
Benchmarks comparable to an equity fund, bond fund, and money market fund
will always be offered.
(e) Notwithstanding any other provision of the Plan to the
contrary, the Committee may not delegate its rights and responsibilities
under this Section 11; provided, however, that, the Board of Directors of
the REIT may, from time to time, substitute itself, or another committee of
the Board, for the Committee under this Section 11.
IN WITNESS WHEREOF, Urban Shopping Centers, Inc., has caused this Plan to
be executed by its duly authorized officer this ______, day of _________,
1998.
Urban Shopping Centers, Inc.
By: _________________________
Its: _________________________
EXHIBIT 10.31
- -------------
FOURTH AMENDMENT
TO
SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
URBAN SHOPPING CENTERS, L.P.
This Fourth Amendment (this "Amendment") to the Second Amended and
Restated Agreement of Limited Partnership, dated as of October 14, 1993 (as
amended through the date hereof, the "Partnership Agreement"), of Urban
Shopping Centers, L.P., an Illinois limited partnership (the
"Partnership"), is made as of the 29th day of December, 1998 by Urban
Shopping Centers, Inc., a Maryland corporation, as general partner (the
"General Partner"), pursuant to the authority contained in Section 14.1.2.3
of the Partnership Agreement.
WHEREAS, the Partnership is an Illinois limited partnership existing
under the Illinois Revised Uniform Limited Partnership Act (the "Act")
pursuant to the Partnership Agreement;
WHEREAS, the General Partner is issuing Series B Preferred Shares (as
defined in the amendment set forth in Section 1 below);
WHEREAS, the General Partner will contribute the net proceeds of the
issuance of the Series B Preferred Shares as a Capital Contribution to the
Partnership;
WHEREAS, Section 4.2.2 of the Partnership Agreement provides as
follows:
"The Partnership also may from time to time issue to the General
Partner additional Partnership Units or other Partnership Interests in one
or more classes, or one or more series of any of such classes, with such
designations, preferences and relative, participating, optional or other
special rights, powers and duties, including rights, powers and duties
senior to Limited Partnership Interests, all as shall be determined by the
General Partner, subject to Illinois law, including, without limitation,
with respect to (a) the allocations of items of Partnership income, gain,
loss, deduction and credit to each such class or series of Partnership
Interests; (b) the right of each such class or series of Partnership
Interests to share in Partnership distributions; and (c) the rights of each
such class or series of Partnership Interests upon dissolution and
liquidation of the Partnership; provided that (x) the additional
Partnership Interests are issued in connection with an issuance of shares
of the General Partner, which shares have designations, preferences and
other rights, all such that the economic interests are substantially
similar to the designations, preferences and other rights of the additional
Partnership Interests issued to the General Partner in accordance with this
Section 4.2.2, and (y) the General Partner shall make a Capital
Contribution to the Partnership in an amount equal to the proceeds raised
in connection with the issuance of such shares of the General Partner."
WHEREAS, Section 14.1.2.3 of the Partnership Agreement provides that
the General Partner shall have the power, without the consent of the
Limited Partners, to amend the Partnership Agreement "to set forth the
rights, powers, duties, and preferences of the holders of any additional
Partnership Interests issued pursuant to Section 4.2.2" of the Partnership
Agreement; and
WHEREAS, the General Partner desires to amend the Partnership
Agreement to set forth the rights, powers, duties, and preferences of the
General Partner as the holder of certain Partnership Interests, and the
Partnership Units corresponding thereto, issued pursuant to Section 4.2.2
of the Partnership Agreement;
<PAGE>
NOW, THEREFORE, pursuant to the authority contained in Section
14.1.2.3 of the Partnership Agreement, the General Partner hereby amends
the Partnership Agreement as follows:
1. AMENDMENT. Effective at (and subject to the occurrence of) the
Effective Time (as defined in Section 2 below), Section 4.2 of the
Partnership Agreement is hereby amended by adding the following new
subsection 4.2.8 at the end of such Section:
"4.2.8 PARTNERSHIP INTERESTS AND UNITS IN CONNECTION WITH
SERIES B CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK.
4.2.8.1 Pursuant to the provisions of, and upon the Capital
Contribution called for by, Section 4.2.2, there are hereby from time to
time issued to the General Partner additional Partnership Interests and,
corresponding thereto, a number of Partnership Units (the "Series B
Preferred Units") equal to the number of shares of Series B Cumulative
Convertible Redeemable Preferred Stock of the General Partner, as
classified and designated by Articles Supplementary (the "Articles
Supplementary") filed with the Maryland State Department of Assessments and
Taxation on December 24, 1998 (the "Series B Preferred Shares"), from time
to time outstanding. The Series B Preferred Units shall have such
designations, preferences and relative, participating, optional or other
special rights, powers and duties, including rights, powers and duties
senior to Limited Partnership Interests, as further provided in Section
4.2.8.2 and Section 4.2.8.3 below and as shall be determined by the General
Partner, subject to Illinois law, including, without limitation, with
respect to (a) the allocations of items of Partnership income, gain, loss,
deduction and credit, (b) the right to share in Partnership distributions
and (c) the rights upon dissolution and liquidation of the Partnership, all
such that the economic interests represented by the Series B Preferred
Units are substantially similar to the designations, preferences and other
rights of the Series B Preferred Shares. To the extent necessary to give
effect to the preceding sentence, (i) the Series B Preferred Units shall
have preference over other Partnership Units with respect to distributions
of Available Cash as provided in clause (i) of Section 5.1, and (ii) the
General Partner shall, with respect to the Series B Preferred Units, have
priority over other Partners and Assignees as to profits, losses and
distributions as authorized by Section 8.4; provided, however, that nothing
contained in this Amendment shall be deemed to modify the preferences,
rights, powers and duties of (i) the Class B Units as set forth in the
Second Amendment to the Partnership Agreement, dated as of December 18,
1996 and (ii) the Series A Preferred Units as set forth in the Third
Amendment to the Partnership Agreement, dated as of November 13, 1997.
4.2.8.2 The General Partner shall be entitled to receive
preferential distributions on the Series B Preferred Units corresponding to
the dividends to which holders of the Series B Preferred Shares are
entitled. As set forth in the Articles Supplementary, the dividends to
which holders of Series B Preferred Shares are entitled are as follows
(capitalized terms used in the following subsections (a) through (d) and
not defined in this Amendment are used as defined in the Articles
Supplementary):
<PAGE>
(a) The holders of Series B Preferred Stock shall be
entitled to receive, when, as and if authorized and declared by the Board
out of funds legally available for that purpose, cumulative dividends
payable in cash in an amount per share equal to the greater of (i) the base
dividend of $0.525 per quarter (the "Base Rate") or (ii) the cash dividends
declared on the number of shares of Common Stock, or portion thereof, into
which a share of Series B Preferred Stock would then be convertible,
without regard to any time restrictions on the convertibility of the Series
B Preferred Stock. The amount referred to in clause (ii) of this paragraph
(a) with respect to each succeeding Dividend Period shall be determined as
of the applicable Dividend Payment Date by multiplying the number of shares
of Common Stock, or portion thereof calculated to the fourth decimal point,
into which a share of Series B Preferred Stock would then be convertible
(without regard to any time restrictions on the convertibility of the
Series B Preferred Stock) at the opening of business on such Dividend
Payment Date (based on the Conversion Price then in effect) by the
aggregate cash dividends payable or paid for such Dividend Period in
respect of a share of Common Stock outstanding as of the record date for
the dividend payable on the Common Stock for such Dividend Period. If (A)
the Corporation pays a cash dividend on the Common Stock after the Dividend
Payment Date for the corresponding Dividend Period and (B) the dividend on
the Series B Preferred Stock for such Dividend Period calculated pursuant
to clause (ii) of this paragraph (a), taking into account the Common Stock
dividend referenced in clause (A), exceeds the dividend previously declared
on the Series B Preferred Stock for such Dividend Period, the Corporation
shall pay an additional dividend to the holders of the Series B Preferred
Stock on the date that the Common Stock dividend referenced in clause (A)
is paid, in an amount equal to the difference between the dividend
calculated pursuant to clause (B) and the dividends previously declared on
the Series B Preferred Stock with respect to such Dividend Period. Such
dividends shall be cumulative from the Issue Date, whether or not in any
Dividend Period or Periods such dividends are declared or there are funds
of the Corporation legally available for the payment of such dividends, and
shall be payable quarterly in arrears on the Dividend Payment Dates,
commencing on the first Dividend Payment Date after the Issue Date. Each
such dividend shall be payable in arrears to the holders of record of the
Series B Preferred Stock, as they appear on the stock records of the
Corporation at the close of business on such record date as is fixed by the
Board which shall be not more than 60 days prior to the corresponding
Dividend Payment Date and, within such 60-day period, shall be the same
date as the record date for the regular quarterly dividend payable on the
Common Stock for such Dividend Period (or, if there is no such record date
for the Common Stock, then such date as the Board may fix). Accumulated,
accrued and unpaid dividends for any past Dividend Periods may be
authorized or declared and paid at any time, without reference to any
regular Dividend Payment Date, to holders of record on such record date as
may be fixed by the Board which shall be not more than 45 days prior to the
corresponding payment date.
<PAGE>
(b) The amount of dividends payable per share of Series
B Preferred Stock for the Initial Dividend Period, or any other period
shorter than a full Dividend Period, shall be computed ratably on the basis
of a 360-day year of twelve 30-day months. Holders of Series B Preferred
Stock shall not be entitled to any dividends, whether payable in cash,
property or stock, in excess of cumulative dividends as herein provided on
the Series B Preferred Stock. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments
on the Series B Preferred Stock which may be in arrears.
(c) So long as any of the Series B Preferred Stock is
outstanding, except as described in the immediately following sentence, no
dividends shall be declared or paid or set apart for payment by the
Corporation and no other distribution of cash or other property shall be
declared or made directly or indirectly by the Corporation with respect to
any class or series of Parity Stock for any period unless all accumulated,
accrued and unpaid dividends have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set apart
for payment for all past Dividend Periods with respect to the Series B
Preferred Stock. When dividends are not paid in full or a sum sufficient
for such payment is not set apart for payment as provided above, all
dividends declared on the Series B Preferred Stock and all dividends
declared on any other class or series of Parity Stock shall be declared
ratably in proportion to the respective amounts of dividends accumulated,
accrued and unpaid on the Series B Preferred Stock and on such Parity
Stock.
(d) So long as any of the Series B Preferred Stock is
outstanding, no dividends (other than dividends or distributions paid in,
or options, warrants or rights to subscribe for or purchase, Junior Stock)
shall be declared or paid or set apart for payment by the Corporation and
no other distribution of cash or other property shall be declared or made
directly or indirectly by the Corporation with respect to any class or
series of Junior Stock, nor shall any Junior Stock be redeemed, purchased
or otherwise acquired (other than a redemption, purchase or other
acquisition of Common Stock made for purposes of an employee incentive or
benefit plan of the Corporation or any subsidiary) for any consideration
(or any moneys be paid to or made available for a sinking fund for the
redemption of any Junior Stock) directly or indirectly by the Corporation
(except by conversion into or exchange for Junior Stock), nor shall any
other cash or other property otherwise be paid or distributed to or for the
benefit of any holder of Junior Stock in respect thereof directly or
indirectly by the Corporation unless in each case (i) all dividends
(including all accumulated, accrued and unpaid dividends) have been or
contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for all past Dividend Periods
with respect to the Series B Preferred Stock and all past dividend periods
with respect to any Parity Stock and (ii) a sum sufficient for the payment
thereof has been or contemporaneously is paid or set apart for payment of
the dividend for the current Dividend Period with respect to the Series B
Preferred Stock and the current dividend period with respect to any Parity
Stock.
<PAGE>
4.2.8.3 Upon any liquidation, dissolution or winding up of
the Partnership, whether voluntary or involuntary, the General Partner
shall be entitled to receive preferential distributions with respect to the
Series B Preferred Units corresponding to the liquidation preference to
which holders of the Series B Preferred Shares are entitled upon any
liquidation, dissolution or winding up of the General Partner. As set
forth in the Articles Supplementary, the liquidation preference to which
holders of Series B Preferred Shares are entitled is as follows
(capitalized terms used in the following subsections (a) and (b) and not
defined in this Amendment are used as defined in the Articles
Supplementary):
(a) Upon any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, before any payment or
distribution of the assets of the Corporation (whether capital or surplus)
shall be made to or set apart for the holders of Junior Stock, the holders
of Series B Preferred Stock shall be entitled to receive $32.32 per share
of Series B Preferred Stock (the "Liquidation Preference"), plus an amount
equal to all dividends (whether or not earned or declared) accumulated,
accrued and unpaid thereon to the date of final distribution to such
holders, if any; but such holders shall not be entitled to any further
payment. Until the holders of the Series B Preferred Stock have been paid
the Liquidation Preference in full, plus an amount equal to all dividends
(whether or not earned or declared) accumulated, accrued and unpaid thereon
to the date of final distribution to such holders, no payment shall be made
to any holder of Junior Stock upon any liquidation, dissolution or winding
up of the Corporation. If, upon any liquidation, dissolution or winding up
of the Corporation, the assets of the Corporation, or the proceeds thereof,
distributable among the holders of Series B Preferred Stock are
insufficient to pay in full such preferential amount and liquidating
payments on any other class or series of Parity Stock, then such assets, or
the proceeds thereof, shall be distributed among the holders of Series B
Preferred Stock and any such other Parity Stock ratably in proportion to
the respective amounts which would be payable on such Series B Preferred
Stock and any such other Parity Stock if all amounts payable thereon were
paid in full.
<PAGE>
(b) Upon any liquidation, dissolution or winding up of
the Corporation, after payment has been made in full to the holders of
Series B Preferred Stock and any Parity Stock as provided in this Section
4.2.8.3, any other series or class of Junior Stock shall, subject to the
respective terms thereof, be entitled to receive any and all assets
remaining to be paid or distributed, and the holders of the Series B
Preferred Stock and any Parity Stock shall not be entitled to share
therein.
(c) For purposes of this Section 4.2.8.3, (i) a
consolidation or merger of the Corporation with or into one or more
corporations, (ii) a sale or transfer of all or substantially all of the
Corporation's assets or (iii) a statutory share exchange shall not be
deemed to be a liquidation, dissolution or winding up, voluntary or
involuntary, of the Corporation."
2. EFFECTIVENESS. The amendment set forth in Section 1 shall
become effective at the time of the first issuance of Series B Preferred
Shares (the "Effective Time").
3. CONTINUING EFFECTIVENESS. As herein amended, the Partnership
Agreement shall remain in full force and effect and is hereby ratified and
confirmed in all respects.
4. GOVERNING LAW. This Amendment shall be governed by the
internal laws of the State of Illinois.
5. DEFINED TERMS. Capitalized terms used and not defined herein
are used as defined in the Partnership Agreement.
<PAGE>
IN WITNESS WHEREOF, the undersigned, the General Partner of the
Partnership, has executed this Amendment to the Partnership Agreement as of
the date written above.
URBAN SHOPPING CENTERS, INC.
By: /s/Michael Hilborn
------------------------------
Michael Hilborn
Senior Vice President
EXHIBIT 13.1
- ------------
1998 ANNUAL REPORT TO SHAREHOLDERS
URBAN SHOPPING CENTERS, INC. is a self-administered real estate investment
trust (REIT) in the business of owning, acquiring, managing, leasing,
developing and redeveloping regional and super-regional malls throughout
the United States. Urban Shopping Centers commenced operations in October
1993 and is listed on The New York Stock Exchange and The Chicago Stock
Exchange (Symbol: URB).
Urban Shopping Centers currently owns a portfolio consisting of
interests in nineteen retail properties comprised of more than 17 million
square feet of space and also has under development an approximate 1.1
million square foot regional mall near Sacramento, California and an
approximate 350,000 square foot community center in Tampa, Florida. The
company opened Brandon TownCenter in Tampa, Florida in 1995, Wolfchase
Galleria in Memphis, Tennessee in 1997 and Citrus Park Town Center in
Tampa, Florida on March 3, 1999. The company's portfolio, excluding recent
acquisitions and development, produced sales per square foot of $377 in
1998, which ranks among the highest in the industry.
Urban Shopping Centers owns interests in several of the premier
shopping centers in the United States, including Oakbrook Center (Oak
Brook, Illinois), Water Tower Place (Chicago, Illinois), Copley Place
(Boston, Massachusetts), San Francisco Shopping Centre (San Francisco,
California) and Old Orchard Center (Skokie, Illinois), as well as in Urban
Retail Properties Co., its property management, leasing and development
affiliate. Urban Retail Properties Co. is one of the nation's largest
retail property managers, managing more than 50 million square feet of
regional malls and community centers in 22 states and the District of
Columbia.
<PAGE>
TABLE OF CONTENTS
Letter to Shareholders.......................................... 1
Business Concepts............................................... 4
Property Locations.............................................. 12
Financial Highlights............................................ 13
Management's Discussion......................................... 14
Financial Statements............................................ 22
Notes to Financial Statements................................... 26
Independent Auditors' Report.................................... 36
Selected Financial Data......................................... 37
Quarterly Financial Summary..................................... 37
Board of Directors/Officers..................................... 38
Shareholder Information......................................... 38
<PAGE>
|Diluted Funds Available for Distribution
|Per Common Share
|
98 | $2.98
97 | $2.67
96 | $2.45
95 | $2.22
94 | $2.01
---------------------------------------------------
$1.50 1.75 2.00 2.25 2.50 2.75 3.00
|Sales Per Square Foot (1)
98 | $377
97 | $361
96 | $351
95 |
----------------------------------------------------
$ 335 $320 330 340 350 360 370 380
|Dividend Per Share
|
98 | $2.10
97 | $2.03
96 | $1.98
95 | $1.94
94 | $1.88 (2)
------------------------------------------------
$1.80 1.85 1.90 1.95 2.00 2.05 2.10
(1) Sales per square foot calculated in accordance with the official
Council of Shopping Centers (ICSC) definition. Prior to 1995, sales per
square foot were not calculated using ICSC definition.
(2) Annualized.
<PAGE>
We continue to work hard together to improve the performance of our
company. We own some of the finest retail properties in the country. Our
recent developments and acquisitions have only helped to improve our
already excellent portfolio. In the following pages, some of Urban Shopping
Centers, Inc.'s executives share their thoughts on the company's philosophy
and the regional mall business.
HOW WE DO
WHAT WE DO.
TO OUR SHAREHOLDERS:
1998 was a frustrating year for shareholders of many REIT stocks as the
National Association of Real Estate Investment Trust (NAREIT) Index was
down more than 18% on a total return basis. At the same time, according to
NAREIT, Urban Shopping Centers, Inc.'s stock provided a total return to
shareholders of approximately 3.3%. While we were not happy with our
stock's absolute performance, the strong relative performance speaks to the
quality and stability of our assets and earnings. As for Urban's portfolio,
our properties continue to perform very well. Citrus Park Town Center was
successfully developed and opened in Tampa, Florida, on March 3, 1999. We
have another regional mall, Galleria at Roseville, currently under
development near Sacramento, California. We also completed another
strategic acquisition during 1998, Woodland Hills Mall in Tulsa, Oklahoma.
We remain committed to our strategy of owning and operating high-quality
regional malls.
In this report, we would like to take the opportunity to review our
1998 results, discuss our company's future challenges and opportunities and
provide you with additional insight into our company and how we operate.
HIGHLIGHTS OF 1998
EXISTING PORTFOLIO During 1998, our core properties generated internal net
operating income growth of approximately 5%. This number is consistent with
the internal growth we have posted over the last five years and is due, in
large part, to the high quality of our malls. Urban's portfolio remains one
of the best leased and most productive in our industry.
DEVELOPMENT Our company has developed a reputation as one of the nation's
premier developers in the regional mall industry because of our successes
at Brandon Town Center (Tampa, Florida) and Wolfchase Galleria (Memphis,
Tennessee). These properties are illustrative of our growth strategy: to
develop shopping malls that dominate their trade areas.
The newest product of our expertise, Citrus Park Town Center, opened
on time and on budget on March 3, 1999. Citrus Park Town Center is a 1.1
million square foot regional mall anchored by Burdines, Dillard's, JCPenney
and Sears. The center features approximately 120 specialty shops and
restaurants, an approximate 90,000 square foot theater complex and a unique
"Main Street" interior design theme. The mall was virtually 100 percent
leased at opening and is expected to become the shopping destination for
the middle and upper income consumer in northwest Tampa. Our expectation is
that Citrus Park Town Center will be as productive as both Brandon
TownCenter and Wolfchase Galleria.
In November, we also completed an extensive $13 million renovation of
our Fox Valley Center in Aurora, Illinois. Our work included a renovated
food court, the replacement of all flooring and new lighting, landscaping
and furnishings. This new state-of-the-art shopping environment has already
improved mall traffic and sales and has also attracted new tenants to the
center. As you may recall, we acquired Fox Valley Center in December 1997.
Development remains an important part of our growth story. As further
described below, we have additional regional mall developments planned.
ACQUISITIONS In 1998, we continued our strategy of selectively acquiring
assets that match the characteristics of our existing portfolio. Throughout
the year, we analyzed numerous opportunities. In most cases, we were unable
to identify assets which met both our quality and pricing criteria. We
believe our selectivity will benefit us in the future.
There was one asset that met our criteria in 1998. In December we
acquired a 50% interest in Woodland Hills Mall, located in Tulsa, Oklahoma,
with J.P. Morgan Investment Management Inc. acquiring the remaining
interest as our investment partner.
Woodland Hills Mall is a 1.1 million square foot regional mall
anchored by Dillard's, Foley's, JCPenney and Sears. The mall opened in 1976
and was renovated in 1995. It is the dominant regional mall in Tulsa.
Because we already own Penn Square Mall in Oklahoma City, we believe
Woodland Hills Mall will provide us with certain synergies since tenants
and suppliers will recognize we now own two of the most dominant regional
malls in Oklahoma.
THIRD-PARTY BUSINESS Our property management, leasing and development
affiliate, Urban Retail Properties Co., is one of the country's largest
retail property managers. In addition to managing the majority of Urban
Shopping Centers' own portfolio, Urban Retail Properties Co. provides
management, leasing, development and consulting services to various
institutional and entrepreneurial owners who want to benefit from its
retail relationships and expertise. Third-party management business remains
an important part of our strategy and we are continuing to pursue new
management opportunities.
We also continue to maintain our presence overseas. Urban Retail
Properties Co.'s international affiliate, Urban Retail International LLC,
continues work on assignments in Taiwan and is also considering various
other projects with foreign owners who are attempting to develop retail
projects around the world.
1998 FINANCIAL OVERVIEW
In 1998, Diluted Funds Available for Distribution (FAD) per common share
grew 11.7%. This increase continues our record of growing FAD on a strong,
consistent basis. Since we became public in 1993, our diluted FAD per
common share has increased 10.35% on a compound annual basis.
PROPERTY RESULTS
Mall tenant sales for the year increased 4.8% to $1.7 billion compared to
$1.6 billion in 1997 including the actual 1997 full year results for 1997
acquisitions. Sales per square foot were $377 in 1998, compared to $361 in
1997.
Sales per square foot figures exclude Woodland Hills Mall and Wolfchase
Galleria. The total mall Gross Leasable Area occupied was 93.3% at
December 31, 1998. At year-end our regional mall portfolio was 94.1%
leased.
DIVIDENDS, PAYOUT RATIO AND FINANCIAL STRATEGY The Board of Directors
increased the quarterly dividend in 1998 to 52.50 cents per share. At the
Board's meeting in February 1999, your Directors were again pleased to
approve another dividend increase to 56 cents per share per quarter or
$2.24 per share annually. As we have previously stated, as long as we
continue to find attractive ways to reinvest our capital, one of our
ongoing goals is to increase the company's dividend annually - thus
increasing our yield for each shareholder while lowering our payout ratio.
This strategy increases our overall financial flexibility and enables us to
take advantage of growth opportunities when they arise. While we expect
this trend to continue in the short term, we are approaching the legal
requirement governing a REIT's distribution of taxable income and will
therefore be forced to increase the annual dividend more in line
with our annual increase in earnings.
With 1998 diluted FAD per common share of $2.98, our dividend of $2.10
per common share paid in 1998 represented a payout ratio of 70%, compared
to 76% in 1997.
<PAGE>
CAPITAL STRUCTURE
An important part of our overall strategy is to maintain a capital
structure that allows us to achieve these objectives - minimize cost of
capital, provide flexibility and capacity for growth and manage maturity
and interest rate risk.
[PICTURE APPEARS HERE]
MATTHEW S. DOMINSKI is the President and Chief Executive Officer of Urban
Shopping Centers, Inc. From 1991 to 1993, Mr. Dominski was the Chairman of
JMB Retail Properties Company, where he was responsible for all retail
development, management and leasing activities within affiliated entities
of JMB Realty. From 1987 to 1993, Mr. Dominski was Executive Vice President
of JMB Realty and from 1988 to 1993, an Executive Vice President of
JMB/Urban Development Co. Mr. Dominski joined JMB Realty in 1979.
During 1998, we worked towards achieving our financial goals in the
following ways:
- - Maintained our debt to total market capitalization at year-end at
approximately 51%. This is consistent with our historical performance.
- - Continued our trend of a strong interest coverage ratio. This ratio stood
at 2.3:1 at year-end.
- - Staggered the maturity dates of the more than $250 million of debt
financing completed in 1998 thus minimizing our debt rollover risk.
At year-end our debt had a weighted average maturity of 7.4 years.
- - Minimized our exposure to interest rate risk by fixing the interest
rate on $170 million of debt. At year-end, our debt had a weighted
average cost of 6.87%.
In order to finance our growth and maintain our historical financial
ratios, we completed a $25 million private placement of cumulative
convertible redeemable preferred stock to Security Capital Preferred Growth
Incorporated, an affiliate of Security Capital Group Incorporated. This
adds to the $100 million of cumulative convertible redeemable preferred
stock issued to Security Capital in 1997. Security Capital is well
respected in the real estate industry, and we were happy to have them
increase their investment in Urban. We also issued approximately 144,000
operating partnership units to a private investor.
OUTLOOK FOR 1999
Our shareholders, retailers and suppliers can expect that we will continue
to focus on the strength of our asset base and the implementation of our
proven growth strategy. We will seek to continue our development activity
on a consistent basis and to make acquisitions selectively. Most
importantly, we will attempt to do those things from a development and
acquisition standpoint that fit with our current portfolio in terms of
quality of assets and which meet our risk/return requirements.
With Citrus Park successfully opened and contributing to shareholder
value, our development pipeline will primarily focus on Galleria at
Roseville located northeast of Sacramento, California. Galleria at
Roseville already has four committed anchor stores with JCPenney, Macy's,
Nordstrom and Sears. The development schedule currently calls for Galleria
at Roseville to open in fall 2000. The 1.1 million square foot mall will be
located in one of the most demographically desirable parts of California. A
number of other national retailers, who are tenants at other Urban
properties, have already expressed interest in opening stores at Galleria
at Roseville.
<PAGE>
We believe there may be opportunities to buy additional assets in
1999. We will continue to pursue properties that offer a strategic fit with
our overall portfolio and are priced at a level which provides attractive
long-term returns.
Finally, we will continue to focus on managing our portfolio for
significant internal growth. We will continue to monitor every space at our
properties to optimize productivity. We will use our expertise to enhance
merchandising mix, expand tenant sales and re-tenant aggressively to
maintain the strong asset value of our portfolio.
To accomplish these goals in the coming year, we will need the same
type of commitment to excellence that we received from the employees of
Urban Shopping Centers in 1998. We remain grateful for their continuing
efforts and expertise, which have helped establish Urban Shopping Centers
as one of the industry's most respected "brand names" in the development,
redevelopment, leasing and operation of regional malls.
We, together with all of our employees, would like to thank our
shareholders for your continued support.
Sincerely,
/s/ Matthew S. Dominski
- -----------------------
Matthew S. Dominski
President and Chief Executive Officer
/s/ Adam S. Metz
- ----------------
Adam S. Metz
Executive Vice President and Chief Financial Officer
[PICTURE APPEARS HERE]
Adam S. Metz is an Executive Vice President, Chief Financial Officer,
Treasurer, and Director of Acquisitions of Urban Shopping Centers, Inc. He
has held these positions since 1993. Prior to 1993, he was a Vice President
in the Capital Markets group of JMB Realty, which he joined in 1987.
Since becoming a public company in 1993, Urban Shopping Centers
successfully opened Brandon TownCenter in 1995, Wolfchase Galleria in 1997
and Citrus Park Town Center in March 1999. Urban's current development
pipeline includes Galleria at Roseville near Sacramento, California, on
schedule for opening in fall 2000.
DEVELOPMENT
DEVELOPMENT OF NEW PROPERTIES IS AN IMPORTANT PART OF URBAN SHOPPING
CENTERS' GROWTH STRATEGY. WHAT ARE THE MOST CRUCIAL THINGS URBAN'S
MANAGEMENT LOOKS FOR WHEN PLANNING A NEW MALL DEVELOPMENT? JIM CZECH: From
our perspective the most important things that drive our successfully
developed properties are demographics and department stores. Without strong
demographics, which help to dictate our locations, and without department
stores that are an attractive fit for those demographics, we will not have
the same opportunity for success that we have had in the past.
<PAGE>
HOW DO YOU MANAGE RISK ASSOCIATED WITH DEVELOPMENT PROJECTS? Development
has been an important part of Urban's strategy since we became public in
1993. Our goal has been to develop a new property every 11U2 to 2 years.
With only one project under development at a time, we are able to manage
our exposure to potential risks associated with the leasing market. We also
believe that the experience of our development team helps us manage the
challenges associated with development. Our senior development managers
have an average in excess of 20 years of development and redevelopment
experience. They have all worked on a wide variety of projects, ranging
from new developments such as Citrus Park and Wolfchase Galleria to
redevelopment projects such as Fox Valley Center.
WHAT DO YOU DO DURING THE DEVELOPMENT PROCESS TO MAXIMIZE THE EVENTUAL
ASSET VALUE OF A NEW PROPERTY? Once you get past the hurdles of location,
demographics and department stores, I think our greatest challenge is to
come up with a property that is unique. We always try to differentiate our
properties so that when people come there they can say, "I've been to
whatever the competing mall is, but this is different."
CITRUS PARK TOWN CENTER IN TAMPA IS URBAN'S NEWEST MALL DEVELOPMENT. WHAT
IS DIFFERENT ABOUT THE SHOPPING ENVIRONMENT AT CITRUS PARK THAT WILL ENTICE
SHOPPERS? At Citrus Park we have developed a "small town" concept. We have
brick-lined streets, there are different street names throughout the mall
and we have outdoor seating at restaurants. Most importantly, tenants have
been allowed to express themselves more with their store design than in a
typical mall. We want it to look like a downtown where retailers are
typically less restricted with store signage and frontage than a mall.
ISN'T URBAN ALSO DEVELOPING ANOTHER PROPERTY ADJACENT TO CITRUS PARK? Our
mall developments create a "retail node." There is value to the surrounding
land because our mall attracts large numbers of shoppers to the area. We
have also purchased some of the land surrounding Citrus Park. Our strategy
is to capture some of that added value created by Citrus Park by building a
350,000 sq. ft. power center across the street.
[PICTURE APPEARS HERE]
JAMES L. CZECH is an Executive Vice President of Urban Shopping Centers,
Inc.; President - Development, Urban Retail Properties Co.; and President,
Urban Retail International LLC. Mr. Czech joined an affiliate of JMB Realty
through a corporate acquisition in 1983.
Urban Shopping Centers practices a "hands on" approach to asset management.
Senior management continuously reviews the performance of each owned
property on a tenant-by-tenant basis. This allows management to understand
all issues relating to each property.
ASSET MANAGEMENT
URBAN SHOPPING CENTERS IS VERY FOCUSED ON THE ASSET MANAGEMENT OF ITS
PORTFOLIO. CAN YOU EXPLAIN YOUR GENERAL STRATEGY FOR ASSET MANAGEMENT?
DENNIS ZASLAVSKY: We believe thoroughness and attention to detail are
critical in our business. We review every material issue at each of our
properties every 4-6 weeks. We have an all-day meeting attended by our ceo,
cfo, coo and the heads of our management, leasing, development and
marketing groups. At these meetings, we closely monitor what is occurring,
space by space, at each of our properties to be sure we're doing everything
necessary to have the best tenants and most productive assets possible.
WHAT MAKES URBAN'S APPROACH UNIQUE? Our top management visits our
properties on a regular basis. We emphasize a hands-on approach and
recognize the need to have a complete understanding of each of our assets.
We have a very cooperative process and are known to have some of the best
people in the regional mall business. Many people have input as we
formulate and execute our strategies.
<PAGE>
WHAT ARE SOME EXAMPLES OF RECENT CHANGE THAT HAPPENED BECAUSE OF YOUR
IN-DEPTH REVIEW OF URBAN'S PORTFOLIO? Penn Square Mall in Oklahoma City is
a good example. We had a major lease expiration year there during 1998. Our
leasing group downsized some less productive tenants, expanded more
successful tenants and brought new tenants into Oklahoma City. We were able
to significantly increase the productivity of our tenants and our revenue
from the center because of the changes we implemented. Another recent
example is Old Orchard Center in suburban Chicago. At Old Orchard, we moved
Eddie Bauer into an expanded space, brought in their home furnishings
concept and greatly enhanced the occupancy of our newly developed wing of
the center.
DOES YOUR MANAGEMENT OF SO MANY URBAN PROPERTIES POSE ANY SPECIAL ASSET
MANAGEMENT CHALLENGES? Our presence in many mixed-use downtown projects
including Copley Place in Boston, Water Tower Place in Chicago and San
Francisco Shopping Centre requires us to become experts with a number of
unique assets. We have to understand the office and hotel issues of
mixed-use properties and the challenges of urban parking. We must be
familiar with the particular challenges of vertical retailing and the role
tourism markets can play in our urban properties.
IN CONNECTION WITH YOUR ASSET MANAGEMENT ROLE, YOU WORK ON ACQUISITIONS.
WHO ELSE AT URBAN PARTICIPATES IN ACQUISITIONS? We do not have specific
acquisition personnel. The professionals who will manage, lease, develop
and market the property upon completion of an acquisition are the same
people who participate in the acquisition process. We believe this makes
for better acquisitions and also ensures better performance once we are
operating the property.
[PICTURE APPEARS HERE]
DENNIS M. ZASLAVSKY is an Executive Vice President and the Chief Operating
Officer of Urban Shopping Centers, Inc. Mr. Zaslavsky directly oversees
Urban Shopping Centers, Inc.'s portfolio of properties. Prior to joining
Urban, Mr. Zaslavsky was a Vice President of JMB Realty, which he joined in
1991.
Urban Shopping Centers has established strong leasing relationships with
many of the country's best known retailers. With specialty retail stores,
unique restaurants, and entertainment concepts, Urban is able to make their
properties "destinations," not merely shopping malls.
LEASING
LEASING HAS BEEN ONE OF URBAN SHOPPING CENTERS' CONSISTENT STRENGTHS AS A
PUBLICLY-TRADED REIT. WHAT ARE YOUR CRITERIA WHEN LEASING SPACE FOR AN
URBAN PROPERTY? ROSS GLICKMAN: We realize we must understand the
demographics of each center. This translates into understanding the needs
of the consumers who visit the properties. Our leasing strategies also
require us to introduce new concepts into our markets, offer the only
location of certain retailers in a market and expand successful tenants
from one part of the country to another. It is really a question of
creating a merchandise mix that caters to the demographic profile
of the market, but remains fresh and exciting.
HOW DOES URBAN'S APPROACH TO LEASING DIFFER FROM YOUR COMPETITORS? We
differentiate ourselves in a number of ways. First, the high quality of our
properties is very appealing to retailers. Our centers are very productive
with sales per square foot of $377 and occupancy of approximately 93.3%.
Second, we have established a strong reputation because of the successful
lease-up of our three most recent developments. We have shown that we
understand our markets as well as the retailers' needs, concerns and goals.
With each new success, national retailers trust our judgment more and
understand that we're trying to put them in a position where they can be
productive. It boils down to the relationship we have with our counterparts
on the retailing side and the credibility we have developed as the owner
and operator of so many successful properties.
<PAGE>
IS EACH URBAN PROPERTY SEPARATE IN TERMS OF THE RETAIL NICHE YOU ARE TRYING
TO CREATE OR IS THERE A GOOD GENERIC MIX YOU LIKE TO HAVE AT EVERY
PROPERTY? There is a mix relative to categories that you like to
accomplish, such as home furnishings, apparel or jewelry. We do not have a
set formula that dissects a property's space into exact percentages by
category. We work to understand the market's needs and determine who are
the best retailers for that market.
YOU ALSO HAVE RESPONSIBILITY FOR URBAN'S MARKETING DEPARTMENT. WHAT
FUNCTIONS DO THEY PERFORM? Our marketing professionals and leasing
professionals work closely together to create the proper environment for
our properties. The marketing department acts as a marketing agency for
each property, directing marketing programs and incorporating exclusive
programming and alliances where appropriate. The department directs
advertising agencies, holiday decor design, customer service, public
relations and tourism. They create programming tailored to the tenant mix
and designed to maximize traffic and sales, increase the customer base and
maximize the frequency of visits and length of time shoppers spend at the
property.
[PICTURE APPEARS HERE]
ROSS B. GLICKMAN is President - Leasing, Urban Retail Properties Co. From
1991 to 1993, Mr. Glickman served as an Executive Vice President and the
National Director of Leasing for JMB Retail Properties Company.
The malls owned and managed by Urban Shopping Centers benefit from the
company's property management expertise. The management staff is involved
in every aspect of property operations from obtaining favorable pricing for
goods and services, to overseeing exterior signage, landscaping, security
and capital improvements.
PROPERTY MANAGEMENT
URBAN HAS A VERY DEFINITE PHILOSOPHY ABOUT PROPERTY MANAGEMENT. CAN YOU
EXPLAIN THAT PHILOSOPHY FOR US? JOE SHRADER: Urban's goal is to make each
property, both owned and managed, a first class destination for shoppers.
Our property management philosophy is to support that goal in every way we
can. We want to make sure that every thing we do in a physical sense -
roofs, exteriors, parking lots, lighting, landscaping, etc. meets the
highest standard.
BESIDES URBAN, WHO ELSE UTILIZES YOUR PROPERTY MANAGEMENT CAPABILITIES? We
are one of the nation's largest retail property managers. We manage more
than 50 million square feet of space in 22 states and the District of
Columbia. We manage properties for a wide variety of third-party clients
including pension funds, financial institutions and entrepreneurial owners.
Our clients recognize the benefits associated with the size of our
management portfolio. These clients benefit from our strong tenant
relationships, development and redevelopment expertise and the economies of
scale we enjoy when negotiating for goods and services.
DOES OPENING A NEW PROPERTY, LIKE CITRUS PARK, OFFER YOU A DIFFERENT SET OF
CHALLENGES? Each new property requires us to line up a new group of
contractors to provide security, cleaning, trash removal, landscaping and
more. Because we opened Brandon TownCenter in the Tampa market just a few
years ago, we were able to assemble a start-up team internally at Citrus
Park that already had valuable experience in the market. Because of our
national relationships with various vendors, together with our willingness
to work with local vendors, we have the proven ability to operate
efficiently in virtually any city in the country.
HOW DOES YOUR MANAGEMENT STAFF ENSURE THAT ALL YOUR OWNED AND MANAGED
PROPERTIES ARE CONTRIBUTING FULLY TO THE GOAL OF BEING A "FIRST CLASS"
OPERATION? We have a general operations manual that sets corporate
standards for each of our malls. Then we have our whole portfolio divided
into six operating regions, each with a regional manager. They visit each
property frequently and do a total operations review with the property
manager. Visiting each property regularly ensures that standards are met.
<PAGE>
HOW ARE TECHNOLOGICAL ADVANCEMENTS AFFECTING YOUR PROPERTY MANAGEMENT
EFFORTS? New technologies offer us new management tools. We continue to use
the latest technology to be as effective as possible at each property in
areas such as accounting, climate control and security. These technological
advancements provide a level of information tracking at our properties that
we use as a management tool. For example, at most properties in our
portfolio, we track traffic numbers by time of day and location within the
mall. This not only helps control our security and cleaning expenses, but
also lets us track the success of current promotions at attracting
additional shoppers to the mall.
[PICTURE APPEARS HERE]
JOSEPH M. SHRADER is President - Property Management, Urban Retail
Properties Co. From 1991 to 1993, Mr. Shrader was a Senior Executive Vice
President of JMB Retail Properties Company where he directed property
management activities across the country. From 1978 to 1991, Mr. Shrader
served as Director of Retail Operations for JMB Properties Company.
PROPERTY LOCATIONS
[MAP APPEARS HERE]
<PAGE>
<TABLE>
<CAPTION>
PROPERTY LOCATION TOTAL SQ. FT. OWNERSHIP
============================================================================================================
<S> <C> <C> <C> <C>
1 Oakbrook Center Oak Brook, Illinois 2,015,000 100%
- ------------------------------------------------------------------------------------------------------------
2 Old Orchard Center Skokie, Illinois 1,712,000 100%
- ------------------------------------------------------------------------------------------------------------
3 Fox Valley Center Aurora, Illinois 1,433,000 100%
- ------------------------------------------------------------------------------------------------------------
4 Hawthorn Center Vernon Hills, Illinois 1,234,000 100%
- ------------------------------------------------------------------------------------------------------------
5 MainPlace Santa Ana, California 1,116,000 100%
- ------------------------------------------------------------------------------------------------------------
6 Citrus Park Town Center Tampa, Florida 1,100,000 100%
- ------------------------------------------------------------------------------------------------------------
7 Galleria at Roseville* Roseville, California 1,100,000 100%
- ------------------------------------------------------------------------------------------------------------
8 Woodland Hills Mall Tulsa, Oklahoma 1,093,000 50%
- ------------------------------------------------------------------------------------------------------------
9 Wolfchase Galleria Memphis, Tennessee 1,087,000 100%
- ------------------------------------------------------------------------------------------------------------
10 Penn Square Mall Oklahoma City, Oklahoma 1,075,000 100%
- ------------------------------------------------------------------------------------------------------------
11 Brandon TownCenter Tampa, Florida 980,000 100%
- ------------------------------------------------------------------------------------------------------------
12 Miami International Mall Miami, Florida 973,000 40%
- ------------------------------------------------------------------------------------------------------------
13 Coral Square Mall Coral Springs, Florida 941,000 50%
- ------------------------------------------------------------------------------------------------------------
14 Water Tower Place Chicago, Illinois 727,000 55%
- ------------------------------------------------------------------------------------------------------------
15 Valencia Town Center Valencia, California 675,000 25%
- ------------------------------------------------------------------------------------------------------------
16 San Francisco Shopping Centre San Francisco, California 495,000 50%
- ------------------------------------------------------------------------------------------------------------
17 Copley Place Boston, Massachusetts 369,000 33%
- ------------------------------------------------------------------------------------------------------------
18 The Plaza at Citrus Park Town Center * Tampa, Florida 350,000 100%
- ------------------------------------------------------------------------------------------------------------
19 The Plaza at Brandon TownCenter Tampa, Florida 243,000 100%
<PAGE>
- ------------------------------------------------------------------------------------------------------------
20 Service Merchandise Plaza Columbus, Ohio 165,000 100%
- ------------------------------------------------------------------------------------------------------------
21 New York Square Aurora, Illinois 116,000 100%
- ------------------------------------------------------------------------------------------------------------
<FN>
* Under construction
This color indicates this state contains properties OWNED by Urban Shopping Centers, Inc. This color indicates
this state contains properties MANAGED by Urban Retail Properties Co.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
($000's omitted, except share, per square foot and ratio amounts) Years ended December 31
- -------------------------------------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total tenant sales (1)(2) $ 2,534,264 $ 1,926,202 $ 1,323,126
Mall tenant sales (1)(2)(3) $ 1,810,894 $ 1,435,921 $ 944,965
Sales per square foot (1)(3)(4)(5) $ 377 $ 361 $ 351
Property revenues (6) $ 268,761 $ 205,027 $ 130,774
Interest expense coverage ratio (7) 2.31 2.35 2.87
Income before extraordinary items $ 22,948 $ 22,093 $ 19,969
Funds from operations (FFO) (8) $ 55,659 $ 48,559 $ 35,419
Funds available for distribution (FAD) (8) $ 55,879 $ 47,689 $ 34,582
Average number of common and unit voting common
shares outstanding 17,744,072 17,440,454 14,066,243
Common and unit voting common shares outstanding
at end of period 17,788,128 17,667,343 17,081,336
Debt to total market capitalization (9) 50.8% 47.6% 46.3%
Occupancy (10) 93.3% 91.6% 91.2%%
Leased (10) 94.1% 92.8% 92.9%
=============================================================================================================
The chart below shows the calculation of funds from operations for the years 1996 through 1998:
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
Income before extraordinary items and minority interest $ 42,847 $ 35,464 $ 30,702
Plus depreciation and amortization 39,512 31,435 19,232
Plus Company's share of depreciation and amortization from
unconsolidated partnerships and Urban Retail Properties Co. 9,177 6,502 4,129
Less preferred unit distributions and preferred stock dividends (8,319) (2,771) (75)
- -------------------------------------------------------------------------------------------------------------
Total funds from operations $ 83,217 $ 70,630 $ 53,988
- -------------------------------------------------------------------------------------------------------------
Company's share of funds from operations (11) $ 55,659 $ 48,559 $ 35,419
=============================================================================================================
<PAGE>
The chart below shows the calculation of funds available for distribution for the years 1996 through 1998:
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
Total funds from operations $ 83,217 $ 70,630 $ 53,988
Plus non-cash effect of Oakbrook Center straight-line ground
rent and related interest 3,293 3,332 3,173
Less adjustment to reflect actual cash received from
Urban Retail Properties Co. (639) (105) (619)
Plus write-off of assets (12) 186 581 308
Less straight-line rent adjustments (13) (1,720) (1,401) (767)
Less other gains (12) (791) (3,673) (3,372)
- -------------------------------------------------------------------------------------------------------------
Total funds available for distribution $ 83,546 $ 69,364 $ 52,711
- -------------------------------------------------------------------------------------------------------------
Company's share of funds available for distribution (11) $ 55,879 $ 47,689 $ 34,582
=============================================================================================================
<FN>
(1) Only for those tenants who report sales.
(2) 1998 excludes Woodland Hills Mall, which was acquired on December 21, 1998, and Wolfchase Galleria. 1997
includes all regional malls (including 1997 acquisitions from acquired date forward). 1996 excludes Old Orchard
Center, which was acquired on December 18, 1996.
(3) Excludes anchors and movie theaters.
(4) Represents rolling twelve-month sales per square foot as defined by the International Council of Shopping
Centers.
(5) 1998 excludes Woodland Hills Mall, which was acquired on December 21, 1998, and Wolfchase Galleria. 1997
includes all regional malls, except Wolfchase Galleria, which opened on February 26, 1997. 1996 excludes Old
Orchard Center, which was acquired on December 18, 1996.
(6) Represents the Company's consolidated revenues and its share of revenues from unconsolidated partnerships.
(7) Represents the ratio of total funds available for distribution before interest expense (including the
Company's share of unconsolidated entities) to interest expense (excluding deferred interest).
(8) FFO and FAD should not be considered as an alternative to net income or any other GAAP measurement of
performance as an indicator of operating performance or as an alternative to cash flows from operating, investing
or financing activities as a measure of liquidity.
(9) Based upon a closing price of $323/4, $347/8 and $29 per share as of December 31, 1998, 1997 and 1996,
respectively.
(10) Occupancy and leased percentage of the regional malls as of December 31 of each year. 1998 excludes Woodland
Hills Mall, which was acquired on December 21, 1998. 1996 excludes Old Orchard Center, which was acquired on
December 18, 1996.
(11) Based upon a weighted average of 26,529,664, 25,367,282, and 21,440,480 common shares and units outstanding
for 1998, 1997 and 1996, respectively.
(12) Includes the Company's share of unconsolidated partnerships and of Urban Retail Properties Co.
(13) Includes the Company's share of unconsolidated partnerships.
</TABLE>
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in
this Annual Report. Historical and percentage relationships set forth in
the Consolidated Financial Statements and Notes should not be taken as
indicative of future operations of the Company.
REVIEW OF OPERATIONS
Urban Shopping Centers, Inc. is in the business of owning, acquiring,
managing, leasing, developing and redeveloping retail shopping centers.
Strong performance of the Company's portfolio produced a 17.2% increase in
1998 funds available for distribution to $55.9 million from 1997 funds
available for distribution of $47.7 million. The 1997 funds available for
distribution increased 37.9% from 1996 funds available for distribution of
$34.6 million. Presented below is a discussion of sales, occupancy and
rents at the properties. Except as noted, this information is presented for
all regional malls on a combined basis.
TOTAL TENANT SALES AND MALL TENANT SALES
[GRAPH]
SALES Management closely follows the level of retail sales at its
properties. Such sales affect profitability because they determine the
amount the tenant can afford to pay the landlord for total charges. Some of
the specific sales figures the Company follows are discussed below and
shown in the graph above.
TOTAL TENANT SALES AND MALL TENANT SALES Management generally considers
increasing total tenant sales to be an indication that a property is
attracting more customers and providing a greater benefit to its tenants.
Mall tenant sales indicate the amount of sales generated by the mall
tenants. During 1998, mall tenants contributed approximately 91% of the
Company's total regional mall shopping center revenues. The above graph
illustrates total tenant sales and mall tenant sales at the Company's
regional malls for 1994 through 1998.
Excluding the 1998 acquisition of Woodland Hills Mall and the 1997
development of Wolfchase Galleria, aggregate annual sales volume at the
regional malls for those mall shops and anchors that report sales has
increased 3.6% to $2.42 billion in 1998 from $2.33 billion in 1997,
including the actual 1997 full year results for 1997 acquisitions. On the
same basis, mall tenant sales (excluding anchors and movie theaters)
increased 4.8% for the same period.
SALES PER SQUARE FOOT Sales per square foot is reported based upon the
International Council of Shopping Centers definition and represents total
non-anchor reported sales divided by the total square feet occupied by the
tenants reporting those sales. Excluding the 1998 acquisition of Woodland
Hills Mall and the 1997 development of Wolfchase Galleria, sales per square
foot at the regional malls increased 4.5% to $377 in 1998 as compared to
$361 in 1997. We believe our sales per square foot continue to be among the
highest in the industry. Our sales level reflects the quality and viability
of our centers.
TENANT OCCUPANCY Tenant occupancy is one measure which reflects the demand
for space at our properties. The chart below shows the mall gross leasable
area ("GLA") occupancy rate at the regional malls for 1994 through 1998.
The slight decrease in occupancy in 1995 and 1996 is primarily attributable
to temporary closures for the renovation and re-merchandising of certain
centers. Excluding the 1998 acquisition of Woodland Hills Mall, occupancy
was 93.3% at December 31, 1998 compared to 91.6% at December 31, 1997. The
mall GLA was 94.1% leased at December 31, 1998 compared to 92.8% at
December 31, 1997.
<PAGE>
OCCUPANCY AND LEASED RATES AT DECEMBER 31
[GRAPH]
IN PLACE RENTS The average in place rents for the Company's regional malls
excluding Woodland Hills Mall, which was acquired on December 21, 1998,
increased 2.8% to $31.37 per square foot at December 31, 1998 from $30.52
per square foot at December 31, 1997. The December 31, 1997 average in
place rents increased 3.3% from $29.55 per square foot at December 31,
1996.
OCCUPANCY COSTS Occupancy costs generally consist of (i) minimum rent (the
contractual amount a tenant must pay), (ii) percentage rent (the percentage
of sales revenue a tenant must pay as additional rent) and (iii) expense
recoveries (the amount a tenant must pay to reimburse the landlord for the
costs of operating the mall), including real estate taxes. Typically, when
occupancy costs for any specific tenant exceed a certain percentage of such
tenant's annual sales, the tenant may not be profitable. Generally, tenants
in more productive regional malls are able to afford higher occupancy
costs. The following table sets forth the Company's regional mall occupancy
costs (as a percentage of sales) for the last five years. The increase in
occupancy costs reflects the Company's leasing efforts and increased
emphasis on expense recoveries.
<PAGE>
<TABLE>
<CAPTION>
Years ended December 31 1998(1) 1997(2) 1996 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mall tenant sales (3) $ 1,811 $ 1,253 $ 945 $ 915 $ 820
Percent of sales:
Minimum rents 8.5% 8.6% 8.3% 8.2% 8.1%
Percentage rents .5% .4% .4% .4% .5%
Expense recoveries (4) 3.4% 3.4% 3.0% 2.8% 3.1%
- --------------------------------------------------------------------------------------
In-line tenant
occupancy costs (5) 12.4% 12.4% 11.7% 11.4% 11.7%
======================================================================================
<FN>
(1) 1998 excludes Woodland Hills Mall, which was acquired on December 21, 1998.
(2) 1997 excludes San Francisco Shopping Centre, Copley Place, Fox Valley Center
and Hawthorn Center, all acquired in 1997.
(3) In millions. Excludes sales from anchor tenants and movie theaters.
(4) Represents principally real estate tax and common area maintenance charges.
(5) Total mall tenant occupancy costs divided by total mall tenant sales
(excluding anchor tenants and movie theaters).
</TABLE>
<PAGE>
RESULTS OF OPERATIONS
1998 COMPARED TO 1997
Shopping center revenues increased $45.2 million to $197.6 million in 1998
from $152.4 million in 1997. Minimum rents, percentage rents and recoveries
from tenants increased as a result of (i) the acquisitions of Fox Valley
Center and Hawthorn Center on November 14, 1997 and (ii) Wolfchase Galleria
having been open for a full year in 1998 as compared to ten months in 1997.
Minimum rents, percentage rents and recoveries from tenants increased as a
result of increases in average occupancy, rents, sales and real estate
taxes in 1998 as compared to 1997. Other revenues increased at MainPlace
and Old Orchard Center primarily as a result of lease termination fees
received in 1998.
Shopping center expenses, including depreciation and amortization,
increased $28.0 million to $114.0 million in 1998 from $86.0 million in
1997. This increase was primarily attributable to (i) the acquisitions of
Fox Valley Center and Hawthorn Center on November 14, 1997, (ii) Wolfchase
Galleria having been open for a full year in 1998 as compared to ten months
in 1997, (iii) increases at Old Orchard Center and Oakbrook Center as a
result of increased real estate taxes and (iv) an increase in management
fees as a result of the January 1, 1998 termination of management contracts
with the Operating Partnership for certain of the Company's consolidated
properties, which fees were eliminated in consolidation. New management
contracts were entered into with the Management Company, which is not
consolidated.
Mortgage and other interest expense increased $9.9 million to $43.8
million in 1998 from $33.9 in 1997. This increase was primarily
attributable to (i) the acquisitions of Fox Valley Center and Hawthorn
Center on November 14, 1997, (ii) Wolfchase Galleria having been open for a
full year in 1998 as compared to ten months in 1997 and (iii) an increase
at MainPlace as a result of the new swap agreement on May 1, 1998. These
increases were partially offset by a decrease at Old Orchard Center as a
result of the refinancing of its indebtedness on December 11, 1997.
General and administrative expense increased $1.5 million to $4.8
million in 1998 from $3.3 million in 1997. This increase was primarily the
result of additional compensation expense related to the Company's 1996
Incentive Unit Program and reimbursement to the Management Company for
certain employees.
Income from unconsolidated partnerships increased $4.6 million to
$10.8 million in 1998 from $6.2 million in 1997. This increase was
primarily attributable to (i) the investment in a partnership resulting in
a 50% preferred ownership interest in San Francisco Shopping Centre on
June 17, 1997, (ii) the purchase of a one-third equity interest in Copley
Place on August 1, 1997, (iii) the gain on sale of land at Miami
International Mall on June 18, 1998 and November 2, 1998 and (iv) an
increase in minimum rents, recoveries from tenants and other shopping
center revenues at Miami International Mall.
Income from the Management Company increased $0.7 million to $0.3
million in 1998 from a $0.4 million loss in 1997. This increase was
primarily attributable to (i) an increase in management fees as a result of
the management contracts for certain of the Company's consolidated
properties being terminated with the Operating Partnership on January 1,
1998 and new management contracts being entered into with the Management
Company, (ii) a decrease in mortgage interest as a result of the
restructuring of the Management Company's indebtedness, (iii) a fee
received in December 1998 for acquisition and development feasibility
consulting services performed by the Management Company for an affiliated
entity and (iv) an increase in time recoveries as a result of the
development of Citrus Park Town Center. These increases were partially
offset by the increase in compensation expense as a result of the 1996
Incentive Unit Program and an increase in depreciation expense as a result
of the purchase of computer hardware and software during 1997.
<PAGE>
Other gains of $0.5 million in 1998 represent the gain on sale of
an outparcel of land at Wolfchase Galleria.
1997 COMPARED TO 1996
Shopping center revenues increased $57.2 million to $152.4 million in 1997
from $95.2 million in 1996. Minimum rents and recoveries from tenants
increased as a result of (i) the acquisitions of Fox Valley Center and
Hawthorn Center on November 14, 1997, (ii) the acquisition of Old Orchard
Center on December 18, 1996 and (iii) the opening of Wolfchase Galleria on
February 26, 1997. Minimum rents, percentage rents and recoveries from
tenants increased at Penn Square Mall, MainPlace and Oakbrook Center as a
result of increases in average occupancy, rents and sales in 1997 as
compared to 1996.
Shopping center expenses, including depreciation and amortization,
increased $33.8 million to $86.0 million in 1997 from $52.2 million in
1996. This increase was primarily attributable to (i) the acquisitions of
Fox Valley Center and Hawthorn Center on November 14, 1997, (ii) the
acquisition of Old Orchard Center on December 18, 1996 and (iii) the
opening of Wolfchase Galleria on February 26, 1997.
Mortgage and other interest expense increased $19.7 million to
$33.9 million in 1997 from $14.2 in 1996. This increase was primarily
attributable to (i) the acquisitions of Fox Valley Center and Hawthorn
Center on November 14, 1997, (ii) the acquisition of Old Orchard Center on
December 18, 1996 and (iii) the opening of Wolfchase Galleria on
February 26, 1997.
General and administrative expense increased $0.6 million to $3.3
million in 1997 from $2.7 million in 1996 primarily as a result of the
Company's 1996 Incentive Unit Program.
Income from unconsolidated partnerships increased $3.2 million to
$6.2 million in 1997 from $3.0 million in 1996. This increase was primarily
attributable to (i) a decrease in interest expense at Water Tower Place as
a result of the February 10, 1997 refinancing, (ii) the purchase of an
additional approximate 18% interest in Miami International Mall on April 1,
1996, (iii) the investment in a partnership resulting in a preferred 50%
ownership interest in San Francisco Shopping Centre on June 17, 1997 and
(iv) the purchase of a one-third equity interest in Copley Place on
August 1, 1997.
Income from the Management Company decreased $1.5 million to a $0.4
million loss in 1997 from $1.1 million in income in 1996. This decrease was
primarily attributable to (i) a decrease in management fees and lease
commissions as a result of a net decrease in management and leasing
contracts, including Old Orchard Center, which subsequent to the Company's
acquisition on December 18, 1996, is being managed by the Operating
Partnership (such amounts are eliminated in consolidation), (ii) an
increase in mortgage interest as a result of interest payable on the JMB
Realty Corporation ("JMB Realty") affiliated debt beginning in May 1996 and
(iii) a write-down of an outstanding mortgage loan receivable of an
affiliated joint venture, recognized in the fourth quarter of 1997. These
decreases were partially offset by a decrease in income taxes as a result
of a decrease in operating income.
Other gains of $3.7 million in 1997 represent (i) the $1.8 million
gain on sale of an outparcel of land at Wolfchase Galleria during the
second quarter of 1997 and (ii) the $1.9 million gain on sale of the
Burdines store at Brandon TownCenter during the third quarter of 1997.
Other gains of $3.4 million in 1996 represent the gains on sale of four
outparcels at Wolfchase Galleria.
The extraordinary items, net of minority interest, of $5.7 million
in 1997 represent prepayment penalties and the write-off of unamortized
financing costs related to the refinancing of indebtedness at Old Orchard
Center, Oakbrook Center, Wolfchase Galleria and Water Tower Place.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
FINANCIAL CONDITION
Net cash flows from operating activities increased $11.1 million in 1998
from 1997. This increase was primarily attributable to an increase in
rental operations discussed above. Net cash flows from operating activities
increased $13.9 million in 1997 from 1996. This increase was primarily
attributable to an increase in rental operations discussed above.
Net cash flows used in investing activities decreased $97.6 million
in 1998 from 1997. This decrease was primarily attributable to (i) the
acquisitions of Fox Valley Center and Hawthorn Center in November 1997,
(ii) the investment in a partnership resulting in a 50% preferred interest
in San Francisco Shopping Centre in June 1997, (iii) the acquisition of
land in Roseville, California in June 1997 and (iv) an increase in cash
distributions from San Francisco Shopping Centre, Copley Place and Coral
Square Mall in 1998. These decreases were partially offset by (i) the
acquisition of a 50% equity interest in Woodland Hills Mall on December 21,
1998, (ii) an increase in cash contributions to Citrus Park Venture Limited
Partnership ("Citrus Park") during 1998 and (iii) proceeds from the sale of
the Burdines store at Brandon TownCenter in September 1997. Net cash flows
used in investing activities increased $50.5 million in 1997 from 1996.
This increase was primarily attributable to (i) the acquisitions of Fox
Valley Center and Hawthorn Center in November 1997, (ii) the investment in
a partnership resulting in a 50% preferred ownership interest in San
Francisco Shopping Centre in June 1997, (iii) the acquisition of land in
Roseville, California in June 1997 and (iv) an increase in cash
contributions to San Francisco Shopping Centre, Citrus Park and Miami
International Mall during 1997. These increases were partially offset by
proceeds from the sale of the Burdines store at Brandon TownCenter in
September 1997 and a decrease in additions to investment properties as a
result of the completion and opening of Wolfchase Galleria in February
1997.
Net cash flows from financing activities decreased $105.6 million
in 1998 from 1997. This decrease was primarily attributable to a decrease
in proceeds from the issuance of preferred stock and an increase in cash
distributions to limited partners of the Operating Partnership and
dividends paid to shareholders. These decreases were partially offset by
additional fundings from the Company's lines of credit. Net cash flows from
financing activities increased $35.2 million in 1997 from 1996. This
increase was primarily attributable to the proceeds from a permanent loan
at Wolfchase Galleria and the issuance of common stock, unit voting common
stock and preferred stock in 1997. These increases were partially offset by
the repayment of the construction loan at Wolfchase Galleria and an
increase in cash distributions to limited partners of the Operating
Partnership and dividends paid to shareholders.
At December 31, 1998, the Company and its consolidated ventures had
cash, cash equivalents and short-term investments of $0.4 million.
Beginning with the dividend declared and paid in the first quarter
of 1999, the Company increased its quarterly dividend to $0.560 per share,
up 6.7% from $0.525 per share previously.
CAPITALIZATION
At December 31, 1998, the Company's debt (including the Company's share of
debt of unconsolidated partnerships and the Management Company) totaled
$1.06 billion of which $963.4 million is fixed rate debt and $95.8 million
is floating rate debt.
On December 21, 1998, the Company acquired a 50% equity interest in
Woodland Hills Mall, LLC (the "LLC"). Concurrent with the acquisition, the
LLC secured financing for $90.0 million which bears interest at a fixed
rate of 7.00% and matures on January 1, 2009.
<PAGE>
On December 1, 1998, the Company assumed $31.0 million of the
Management Company's $51.0 million of indebtedness. The indebtedness is
secured by the Management Company's interest in certain management
contracts and a guarantee by Penn Square Mall Limited Partnership. The
$31.0 million bears interest at 7.54% and matures on August 1, 2001.
Subsequent to year-end, the Company secured $75.0 million in financing for
Penn Square Mall. The loan bears interest at a fixed rate of 7.025% and
matures on March 1, 2009. In addition, the Management Company obtained a
$20.0 million loan. The loan bears interest at a floating rate of LIBOR +
1.20% and matures on February 25, 2004. Furthermore, Penn Square Mall and
the Management Company prepaid their respective December 31, 1998
outstanding indebtedness.
On October 19, 1998, the Company completed an extension on the
$80.0 million MainPlace indebtedness. The indebtedness is now scheduled to
mature on September 30, 1999. On May 1, 1998, the Company entered into an
interest rate swap agreement for the MainPlace indebtedness thereby fixing
the all-in interest rate at 6.25% through maturity.
On August 7, 1998, the Company executed a construction loan with a
lender in the amount of $86.1 million to finance the remaining construction
costs at Citrus Park Town Center. The loan was initially funded in August
1998 and matures on August 7, 2000; however, it may be extended for three
one-year periods. At December 31, 1998, the floating interest rate on the
loan was LIBOR + 1.20% (6.41%). Subsequent to year-end, the interest rate
was reduced to LIBOR + 1.05%. As of December 31, 1998, $45.3 million was
outstanding.
On July 26, 1995, the Company signed an agreement with a group of
lenders for the establishment of a $90.0 million secured, revolving line of
credit (the "Line"), which on November 25, 1998 was increased to $107.5
million. The Line is currently subject to a floating interest rate of LIBOR
+ 0.85% (6.39% at December 31, 1998). As of December 31, 1998, $56.8
million was outstanding.
On November 6, 1996, the Company entered into an agreement with a
lender for a one-year $5.0 million unsecured revolving line of credit,
which on January 30, 1998, was amended to increase the line to $7.5 million
and extend the maturity to January 29, 1999. Subsequent to year-end, this
line was further amended to increase the line to $10.0 million, extend the
maturity to January 28, 2000 and change the interest rate to the Reference
Rate -1.5625%. At December 31, 1998, this line of credit bore interest at
the Reference Rate -2.00% (5.75%). As of December 31, 1998, $3.8 million
was outstanding.
During the first quarter of 1998, the Company entered into an
interest rate swap agreement on $10.0 million of its floating rate
indebtedness thereby fixing the all-in rate at 6.64% through the expected
maturity date.
Although there can be no assurances, the Company believes that
operating cash flows will be sufficient to service all Company debt and
anticipates repayment or refinancing when such amounts are due in the
ordinary course of its business. The Company's interest expense coverage
ratio (including the Company's share of unconsolidated entities interest
expense and excluding deferred interest) decreased to 2.31 at December 31,
1998 as compared to 2.35 at December 31, 1997. At December 31, 1998, the
Company's debt to total market capitalization (which includes the market
value of issued and outstanding shares of capital stock of the Company and
of partnership interests in the Operating Partnership not held by the
Company, plus Company debt) was approximately 51% as illustrated by the
table at the end of Management's Discussion and Analysis of Financial
Condition and Results of Operations.
<PAGE>
On December 29, 1998, the Company issued $25.0 million in
cumulative convertible redeemable preferred stock ("Preferred Stock") with
a liquidation preference of $32.32 per share. Quarterly dividends on the
Preferred Stock are equal to the greater of (i) $0.525 per share or (ii)
the quarterly dividend then payable on the shares of common stock into
which the Preferred Stock is convertible. The Preferred Stock is
convertible into common stock, at the option of the holder, at a conversion
price of $32.32 per share (subject to antidilution adjustments) at anytime
after September 1999. After six years, the Preferred Stock may be redeemed,
at the option of the Company, for cash at a redemption price of $32.32 per
share. The net proceeds of the issue, after deducting transaction costs,
were used in connection with the acquisition of a 50% equity interest in
Woodland Hills Mall. As of December 31, 1998, the Company had $342.8
million of preferred stock, depository shares, common stock, stock warrants
and rights registered and available under two shelf registrations.
The Company believes that its cash generated from property
operations will provide the necessary funds on a short-term and long-term
basis for its operating expenses, interest expense on outstanding
indebtedness and recurring capital expenditures and all dividends to the
shareholders necessary to satisfy the real estate investment trust ("REIT")
requirements. Sources of capital for future acquisitions, development and
non-recurring capital expenditures, such as major building renovations and
expansions, as well as for scheduled principal payments, including balloon
payments, on the outstanding indebtedness are expected to be obtained from
the following sources: (i) excess funds available for distribution, (ii)
working capital reserves, (iii) additional Company or property financing,
(iv) proceeds from the sale of assets, including outparcels and (v)
additional equity raised in the public or private markets (including the
issuance of additional common stock, unit voting common stock and/or
units). Accordingly, the Company expects that it may incur additional
indebtedness. In light of current economic conditions, relative costs of
debt and equity capital, market values of properties, growth and
acquisition opportunities and other factors, the Company may consider an
increase or decrease in its ratio of debt to total market capitalization
accordingly.
CAPITAL INVESTMENTS
In November 1998, the Company completed a renovation of Fox Valley Center
at a cost of approximately $13.0 million. In November 1997, the Company
entered into a put option agreement with an unaffiliated third party for
the purchase of a regional mall. This put option expired on December 31,
1998.
The Company's newest super-regional mall, Citrus Park Town Center
in Tampa, Florida, opened virtually 100% leased on March 3, 1999. The
anchor tenants are Burdines, Dillard's, JCPenney and Sears. Citrus Park
Town Center also contains more than 120 specialty shops and restaurants and
an approximate 90,000 square foot state-of-the-art movie theatre in a total
retailing package designed to make Citrus Park Town Center a destination
mall. In addition, an approximate 350,000 square foot community center
opposite the regional mall, The Plaza at Citrus Park, is scheduled to open
in phases beginning in the fall of 1999. A bond offering of $26.7 million
to fund the roadwork surrounding the property was completed by the Citrus
Park Community Development District (the "CDD") during the fourth quarter
of 1996. The Company assisted the CDD in obtaining the financing by
guaranteeing the irrevocable letter of credit which supports the bonds.
The Company's latest development project is the 1.1 million square
foot Galleria at Roseville near Sacramento, California. Galleria at
Roseville already has four committed anchor tenants with JCPenney, Macy's,
Nordstrom and Sears. The development schedule calls for Galleria at
Roseville to open in the fall of 2000. The official groundbreaking for the
center took place in September 1998.
<PAGE>
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("Statement
133") was issued by the FASB in June 1998. The effective date of this
statement for the Company is January 1, 2000. Statement 133 standardizes
the accounting for derivative instruments, including certain derivative
instruments embedded in other contracts. Under the standard, entities will
be required to carry all derivative instruments in the balance sheet at
fair value. The accounting for changes in fair value (i.e., gains or
losses) of a derivative instrument depends on whether it has been
designated and qualifies as part of a hedging relationship and, if so, on
the reason for holding it. The Company uses interest rate swap agreements
and treasury locks as part of its interest rate risk management strategy.
These derivatives are used to hedge cash flow exposure and under Statement
133 the effective portion of the gain or loss on the derivative instrument
will be reported initially as a component of other comprehensive income
(outside earnings) and subsequently reclassified into earnings when the
hedged transaction affects earnings. Any amounts excluded from the
assessment of hedge effectiveness as well as the ineffective portion of the
gain or loss will be reported in earnings immediately.
The Company does not anticipate early adoption of Statement 133;
however, it is estimated that adoption of Statement 133 will result in the
Company recording a derivative instrument liability of $12.6 million and a
transition adjustment loss of $12.6 million in other comprehensive income
at January 1, 2000.
The Company expects that the adoption of Statement 133 will
increase the volatility of reported earnings and other comprehensive
income. In general, the amount of volatility will vary with the level of
derivative activities during any period.
YEAR 2000 The Company uses a significant number of information technology
("IT") and non-IT computer systems in its operations. The IT systems
include the Company's corporate operating and accounting systems, central
lease entry and property management systems, desktop and communications
systems and other corporate systems. The non-IT systems include embedded
microprocessors that control building systems, such as lighting, security,
fire, elevators, heating, ventilation and air conditioning systems.
In 1997, the Company began to address the year 2000 problem (that
is, the fact that some systems may fail or produce inaccurate results using
dates in or around the year 2000). The Company has replaced all of its
mission-critical IT systems, including its central lease entry and property
management software, key communications and desktop software and the
related computer hardware. The Company believes, based on statements by
vendors and on its own testing, that all of the replacements for
mission-critical IT systems are year 2000 ready. The Company also is
continuing to replace other IT systems which are not mission critical with
year 2000 ready systems to the extent that it is cost-effective to do so.
The Company's property management staff has conducted an inventory
and assessment of the non-IT systems at its properties and is seeking
confirmation from the relevant vendors that these non-IT systems are year
2000 ready. The Company has begun, and is continuing, to replace critical
non-IT systems that the Company believes may not be year 2000 ready, and
the Company expects that its properties will be year 2000 ready by July
1999. However, the Company does not have the technical capacity to test all
of the non-IT systems at its properties.
The Company relies on a variety of outside suppliers to provide
critical services to its properties. Of particular concern are the local
utility providers. Electric utilities, for example, use numerous embedded
systems in producing, measuring, controlling and dispensing electricity.
Without electricity, most of the systems at any property will not function
and the property may be unable to operate. The Company does not control
these outside suppliers and for some suppliers, such as the utilities,
there may be no feasible alternative supplier available. The failure of a
<PAGE>
utility or other supplier could have a material adverse effect on the
operations of the affected property, and a widespread failure of utilities
or other suppliers could have a material adverse effect on the Company.
The Company has developed and will continue to refine contingency
plans to address the risk created by the year 2000 problem. These plans
generally include having property management personnel on-site at the
properties during the year change to handle year 2000 problems as they
arise by using the methods that the Company's property management staff
customarily uses to address failures of systems and suppliers. The
contingency plans also include procuring alternative suppliers, when
available, where the Company is able to conclude, on the basis of its
inventory and assessment, that an existing supplier will not be year 2000
ready.
The Company's historical costs for remediation have not been
material and the Company does not anticipate that its future remediation
will be material. Although the cost of replacing the Company's IT
mission-critical systems was substantial, those replacements were made to
improve operational efficiency and were not accelerated due to the year
2000 problem. The Company has not delayed any material projects as a result
of the year 2000 problem.
The foregoing discussion is equally applicable to the Management
Company, except that at third party-owned properties managed by the
Management Company both the historical and any necessary future remediation
costs are the obligation of the property owner and the replacement of any
non-IT system located upon such properties are at the discretion of the
property owner.
FINANCIAL MARKET RISK DISCLOSURE
The Company is exposed to interest rate changes primarily as a result of
its indebtedness. The Company's interest rate risk management objective is
to limit the impact of interest rate changes on earnings and cash flows and
to lower its overall borrowing costs. To achieve its objective, the Company
may enter into derivative financial instruments such as interest rate
swaps, caps and treasury locks in order to mitigate its interest rate risk
on a related financial instrument. Because of the Company's objectives
discussed above, the Company limits its exposure to increases in interest
rates; however, the Company also does not benefit fully from decreases in
interest rates. Furthermore, as interest rates increase and decrease, the
implicit value of the derivative instrument rises and falls, respectively.
This rise and fall in the implicit value of an interest rate swap agreement
does not impact the fixed payment agreed to under the swap agreement. The
Company does not enter into derivative or interest rate transactions for
speculative purposes.
The Company manages its exposure to changes in floating interest
rates by limiting exposure to floating rate changes in any one year. The
Company manages liquidity risk by staggering the maturities of its
indebtedness. The Company increases its financial flexibility through the
use of variable rate debt and derivatives versus fixed rate debt. The
Company manages its exposure to counterparties by diversifying its exposure
to counterparties and entering into swap agreements and treasury locks only
with certain parties which have a specified credit rating.
The Company's interest rate risk is monitored using a variety of
techniques. Fixed rate debt matures and bears average interest rates as
follows:
2000 - $26,650 at 7.40%; 2001 - $50,000 at 7.54%; 2003 - $18,611 at
6.91%; and thereafter - $517,859 at 7.09%. Variable rate debt matures and
bears average interest rates (based on the December 31, 1998 LIBOR rate) as
follows:1999 - $173,500 at 6.26%; 2000 - $105,823 at 6.38%; 2002 - $26,766
at 5.83%; and thereafter - $140,000 at 5.43%.
<PAGE>
The Company utilizes principally variable-to-fixed interest rate
swaps to mitigate its interest rate risk on the above variable rate debt.
Notional amounts of outstanding interest rate swaps have the following
maturities and provide for the following average fixed payment rates to
hedge the indicated underlying variable rates: 2000 - $20,000 at 6.67% and
6.81%; 2002 - $63,500 at 6.70% and 7.37%; 2003 - $10,000 at 6.67% and
7.41%; and thereafter - $256,766 at 5.61% and 6.26%.
The above average balances include the Company's share of
unconsolidated partnerships debt and swaps. The fair value of fixed and
variable rate debt approximates its carrying value at December 31, 1998.
The fair value of interest rate swap agreements was ($12,187) at
December 31, 1998.
As the above information incorporates only those exposures that
exist as of December 31, 1998, it does not consider those exposure or
positions, which could arise after that date. Moreover, because firm
commitments are not presented, the information represented therein has
limited predictive value. As a result, the Company's ultimate realized gain
or loss with respect to interest rate fluctuations will depend on the
exposures that arise during the period, the Company's hedging strategies at
the time and interest rates.
FORWARD-LOOKING STATEMENTS
Certain statements set forth herein contain forward-looking statements,
including, without limitation, statements relating to the timing and
anticipated capital expenditures of the Company's development programs and
acquisitions. Although the Company believes that the expectations reflected
in such forward-looking statements are based on reasonable assumptions, the
actual results may differ materially from those set forth in the
forward-looking statements. Certain factors that might cause such
differences include general economic conditions, local real estate
conditions, construction delays due to the unavailability of construction
materials, weather conditions or other delays beyond the control of the
Company. Consequently, such forward-looking statements should be regarded
solely as reflections of the Company's current operating and development
and acquisition plans and estimates.
These plans and estimates are subject to revision from time to time as
additional information becomes available, and actual results may differ
from those indicated in the referenced statements.
<PAGE>
<TABLE>
Debt to Total Market Capitalization
<CAPTION>
Pro Rata
Share of
Annual 100% Balance Mortgage
($000's omitted, except share Maturity Interest of Mortgage Ownership Notes
and per share amounts) Date Rate Notes Payable Interest Payable
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consolidated entities:
Old Orchard Center Dec. 2009 6.98% $166,287 100.0% $ 166,287
Oakbrook Center Oct. 2004 6.14% 140,000 100.0% 140,000
MainPlace Sept. 1999 6.25% 80,000 100.0% 80,000
Wolfchase Galleria June 2007 7.80% 78,999 100.0% 78,999
Fox Valley Center Nov. 2006 6.75% 85,528 100.0% 85,528
Hawthorn Center Nov. 2008 6.75% 77,864 100.0% 77,864
Penn Square Mall(1) Aug. 2001 7.54% 31,000 100.0% 31,000
Citrus Park Town Center Aug. 2000(2) (2) 45,273 100.0% 45,273
Operating Partnership Apr. 2000(3) (3) 56,800 100.0% 56,800
Operating Partnership Jan. 2000(4) (4) 3,750 100.0% 3,750
- ------------------------------------------------------------------------------------------------------------
765,501 765,501
Unconsolidated entities: (5)
Water Tower Place Feb. 2000(6) (6) 170,000 55.0% 93,500
Coral Square Mall Dec. 2000 7.40% 53,300 50.0% 26,650
Miami International Mall Dec. 2003 6.91% 46,528 40.0% 18,611
San Francisco Shopping Centre July 2003(7) 6.90% 53,531 50.0% 26,766
Copley Place Aug. 2007 7.44% 192,543 33.3% 64,181
Woodland Hills Mall Jan. 2009 7.00% 90,000 50.0% 45,000
Management Company (8) Aug. 2001 7.54% 20,000 95.0% 19,000
- ------------------------------------------------------------------------------------------------------------
625,902 293,708
- ------------------------------------------------------------------------------------------------------------
Company debt $1,059,209
============================================================================================================
Convertible preferred units (convertible into 1,018,182 common units) $ 28,000
Convertible preferred stock (convertible into 3,772,915 shares of common stock) $ 125,000
Market value of equity interests as of December 31, 1998, based upon 26,713,034
common shares/units at $32 3/4 per share $ 874,852
============================================================================================================
Total market capitalization $2,087,061
============================================================================================================
Company debt to total market capitalization 51%
============================================================================================================
<FN>
(1) Subsequent to year-end, the Company secured $75,000 in financing. The new loan bears interest at a fixed
rate of 7.025% and matures on March 1, 2009. Proceeds from the financing were used to repay the outstanding
$31,000 and pay down the Company's line of credit.
(2) This construction loan matures on August 7, 2000; however, it may be extended for three one-year periods. At
December 31, 1998, this loan bore interest at LIBOR + 1.20% (6.41%). Subsequent to year-end, the rate was reduced
to LIBOR + 1.05%.
(3) This line of credit, subject to lenders' approval, may be extended for an additional one or two-year period
and is currently subject to a floating rate of LIBOR + 0.85% (6.39% at December 31, 1998).
(4) At December 31, 1998, this line of credit bore interest at the Reference Rate -2.00% (5.75%). Subsequent to
year-end, this line of credit was extended to January 28, 2000 and the interest rate changed to the Reference Rate
- -1.5625%.
(5) Excludes Valencia Town Center as the Company is a limited partner and is currently not entitled to any cash
distributions until the outside partner has received a return on and of its contributions to the partnership.
(6) Subsequent to year-end, the Company extended this loan maturity to February 1, 2000. It may be further
extended for one additional year. Of this total $170.0 million, $160.0 million bears interest at LIBOR + 1.125%
and $10.0 million bears interest at LIBOR + 1.500% (6.67% and 7.05%, respectively, at
December 31, 1998).
(7) Subsequent to year-end, the Company extended this loan maturity to July 1, 2003; however, it may be further
extended for two one-year periods.
(8) Subsequent to year-end, the Management Company refinanced its $20,000 of indebtness. The new loan bears
interest at a floating rate of LIBOR + 1.20% and matures on February 25, 2004.
</TABLE>
<PAGE>
<TABLE>
Consolidated Balance Sheets
<CAPTION>
($000's omitted, except share and per share amounts) December 31
- -----------------------------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investment properties:
Land, including peripheral land parcels $ 157,045 $ 152,913
Buildings and improvements 1,095,431 1,072,673
Equipment, furniture and fixtures 4,065 3,297
Construction in progress 101,188 6,025
- ----------------------------------------------------------------------------------------------------------
1,357,729 1,234,908
Accumulated depreciation (163,845) (125,594)
- ----------------------------------------------------------------------------------------------------------
Investment properties, net of accumulated depreciation 1,193,884 1,109,314
Investments in unconsolidated partnerships 135,052 118,800
Investment in the Management Company 48,552 15,058
Cash, cash equivalents and short-term investments 422 1,268
Receivables:
Tenant, net of allowance for doubtful accounts of $3,836 and
$3,092 in 1998 and 1997, respectively 16,143 14,031
Other 2,835 7,065
Deferred expenses and other assets 14,522 15,440
- ----------------------------------------------------------------------------------------------------------
$ 1,411,410 $ 1,280,976
==========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $ 765,501 $ 666,908
Land sale-leaseback proceeds 75,000 75,000
Deferred lease accrual 20,733 18,593
Accounts payable and other liabilities 51,270 38,538
Investments in unconsolidated partnerships 42,893 39,665
Commitments and contingencies
- ----------------------------------------------------------------------------------------------------------
Total liabilities 955,397 838,704
<PAGE>
($000's omitted, except share and per share amounts) December 31
- -----------------------------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------------------
Minority interest 129,739 132,616
Stockholders' equity:
Preferred stock, $.01 par value, authorized 5,000,000 shares, issued and
outstanding 3,772,915 shares in 1998 and 2,999,400
shares in 1997 (liquidation preference of $125,000) 38 30
Common stock, $.01 par value, authorized 140,000,000 shares,
issued and outstanding 17,380,193 shares in 1998 and
17,259,408 shares in 1997 174 173
Unit voting common stock, $.01 par value, authorized 5,000,000
shares, issued and outstanding 407,935 shares in 1998 and 1997 4 4
Additional paid-in capital 489,880 459,738
Retained earnings (deficit) (163,822) (150,289)
- ----------------------------------------------------------------------------------------------------------
Total stockholders' equity 326,274 309,656
- ----------------------------------------------------------------------------------------------------------
$ 1,411,410 $ 1,280,976
==========================================================================================================
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Operations
<CAPTION>
($000's omitted, except share and per share amounts) Years ended December 31
- -----------------------------------------------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Shopping center revenues:
Minimum rents $ 118,290 $ 94,812 $ 60,944
Percentage rents 7,322 5,575 4,056
Recoveries from tenants 65,108 47,493 27,659
Other 6,866 4,480 2,521
- -----------------------------------------------------------------------------------------------------------------
197,586 152,360 95,180
Interest income 1,103 1,620 1,864
- -----------------------------------------------------------------------------------------------------------------
198,689 153,980 97,044
- -----------------------------------------------------------------------------------------------------------------
Expenses:
Shopping center expenses 72,538 52,138 30,924
Mortgage and other interest 43,751 33,876 14,246
Ground rent 4,596 4,689 4,420
Depreciation and amortization 41,463 33,866 21,236
General and administrative 4,829 3,269 2,650
Write-off of assets 186 140 308
- -----------------------------------------------------------------------------------------------------------------
167,363 127,978 73,784
- -----------------------------------------------------------------------------------------------------------------
Operating income 31,326 26,002 23,260
Income from unconsolidated partnerships 10,778 6,227 3,000
Income (loss) from the Management Company 264 (438) 1,070
- -----------------------------------------------------------------------------------------------------------------
Income before other gains,
minority interest and extraordinary items 42,368 31,791 27,330
Other gains 479 3,673 3,372
Minority interest (13,540) (12,560) (10,733)
- -----------------------------------------------------------------------------------------------------------------
Income before extraordinary items 29,307 22,904 19,969
Extraordinary items (net of minority interest) -- (5,719) --
- -----------------------------------------------------------------------------------------------------------------
<PAGE>
($000's omitted, except share and per share amounts) Years ended December 31
- -----------------------------------------------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------
Net income 29,307 17,185 19,969
Dividends on preferred stock (6,359) (811) --
- -----------------------------------------------------------------------------------------------------------------
Income applicable to common and unit voting stock $ 22,948 $ 16,374 $ 19,969
=================================================================================================================
Basic income per common and unit voting common share:
Before extraordinary items $ 1.29 $ 1.27 $ 1.42
Extraordinary items -- (.33) --
- -----------------------------------------------------------------------------------------------------------------
Net income $ 1.29 $ 0.94 $ 1.42
=================================================================================================================
Diluted income per common and unit voting common share:
Before extraordinary items $ 1.27 $ 1.27 $ 1.42
Extraordinary items -- (.33) --
- -----------------------------------------------------------------------------------------------------------------
Net income $ 1.27 $ 0.94 $ 1.42
=================================================================================================================
Weighted-average common and unit voting common shares outstanding:
Basic 17,744,072 17,440,454 14,066,243
Diluted 18,013,943 17,730,053 14,136,277
=================================================================================================================
Dividends declared and paid per common and unit voting
common share $ 2.10 $ 2.03 $ 1.98
=================================================================================================================
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Stockholders' Equity
<CAPTION>
Common Stock and Unit
Preferred Stock Voting Common Stock Additional Retained
($000's omitted, ------------------ --------------------- Paid-In Earnings
except share amounts) Shares Amount Shares Amount Capital (Deficit) Total
- ------------------------------------------------------------------------ ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1995 13,742,259 $ 137 $ 259,120 $(124,748) $ 134,509
Shares issued in
connection with:
Public offering 3,225,000 32 80,405 -- 80,437
Issuance of unit
voting common
stock 42,424 1 1,134 -- 1,135
Stock option plan 71,653 1 1,656 -- 1,657
Net income -- -- -- 19,969 19,969
Dividends declared and
paid -- -- -- (27,224) (27,224)
Reallocation of
minority interest -- -- (15,820) -- (15,820)
- ----------------------------------------------------------------------------------------------------------------
Balances at
December 31, 1996 17,081,336 171 326,495 (132,003) 194,663
Shares issued in
connection with:
Private placement(1) 2,999,400 $ 30 -- -- 98,929 -- 98,959
Issuance of
common stock 177,316 2 5,739 -- 5,741
Issuance of unit voting
common stock 69,197 1 2,265 -- 2,266
Conversion of units 127,656 1 1,433 -- 1,434
Stock option plan 211,838 2 4,852 -- 4,854
Net income -- -- -- 17,185 17,185
Dividends declared and
paid -- -- -- (35,471) (35,471)
Reallocation of minority
interest -- -- 20,025 -- 20,025
- -----------------------------------------------------------------------------------------------------------------
<PAGE>
Balances at December 31,
1997 2,999,400 30 17,667,343 177 459,738 (150,289) 309,656
Shares issued in connection
with:
Private placement(2) 773,515 8 -- -- 24,594 -- 24,602
Stock option plan 85,573 1 1,876 -- 1,877
Incentive unit plan 35,212 -- 1,222 -- 1,222
Net income -- -- -- 29,307 29,307
Dividends declared and paid -- -- -- (42,840) (42,840)
Reallocation of minority interest -- -- 2,450 -- 2,450
- -----------------------------------------------------------------------------------------------------------------
Balances at December 31,
1998 3,772,915 $ 38 17,788,128 $ 178 $ 489,880 $ (163,822) $326,274
=================================================================================================================
<FN>
(1) On November 13, 1997, in connection with the Company's acquisitions of Fox
Valley Center and Hawthorn Center, the Company issued $100,000 in cumulative
convertible redeemable preferred stock ("Preferred Stock") with a liquidation
preference of $33.34 per share. Quarterly dividends on the Preferred Stock are
equal to the greater of (i) $0.50 per share or (ii) the quarterly dividend then
payable on the shares of common stock into which the Preferred Stock is
convertible. The Preferred Stock is convertible into common stock, at the option
of the holder, at a conversion price of $33.34 per share (subject to
antidilution adjustments) at anytime after August 1998. After six years, the
Preferred Stock may be redeemed, at the option of the Company, for cash at a
redemption price of $33.34 per share.
(2) On December 29, 1998, in connection with the Company's acquisition of a 50%
equity interest in Woodland Hills Mall, the Company issued $25,000 in Preferred
Stock with a liquidation preference of $32.32 per share. Quarterly dividends on
the Preferred Stock are equal to the greater of (i) $0.525 per share or (ii) the
quarterly dividend then payable on the shares of common stock into which the
Preferred Stock is convertible. The Preferred Stock is convertible into common
stock, at the option of the holder, at a conversion price of $32.32 per share
(subject to antidilution adjustments) at anytime after September 1999. After six
years, the Preferred Stock may be redeemed, at the option of the Company, for
cash at a redemption price of $32.32 per share.
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
<CAPTION>
($000's omitted) Years ended December 31
- --------------------------------------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 29,307 $ 17,185 $ 19,969
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 41,463 33,866 21,236
Write-off of assets 186 140 308
Provision (recovery) for losses on accounts receivable 1,402 972 (225)
Income from unconsolidated partnerships (10,778) (6,227) (3,000)
Loss (income) from the Management Company,
net of distributions (264) 438 --
Minority interest 13,540 12,560 10,733
Other gains (479) (3,673) (3,372)
Extraordinary items -- 5,719 --
Changes in other assets and liabilities 3,378 5,693 7,091
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 77,755 66,673 52,740
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to investment properties, net of change in related payables (50,607) (43,794) (48,011)
Acquisition of investment properties and development parcels -- (101,382) (76,639)
Acquisition of partnership interests (34,924) (31,400) (9,431)
Proceeds from sale of investment property, net of selling costs -- 16,933 --
Proceeds from sale of options and land parcels, net of selling costs 490 2,296 4,679
Cash contributions to unconsolidated partnerships and
the Management Company (25,743) (28,022) (2,253)
Cash distributions from unconsolidated partnerships and
the Management Company 31,824 9,071 5,563
Net sales and maturities of short-term investments (3) -- 161
Other 192 (109) (5)
- ----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (78,771) (176,407) (125,936)
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt, net of issuance costs 160,566 487,601 87,982
Proceeds from issuance of common stock, unit voting
common stock and preferred stock 27,513 105,751 83,229
Repayment of debt (124,655) (433,864) (58,900)
Cash distributions to partners (20,417) (18,291) (14,606)
Dividends paid (42,840) (35,471) (27,224)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 167 105,726 70,481
- ----------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (849) (4,008) (2,715)
Cash and cash equivalents at beginning of year 1,143 5,151 7,866
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 294 $ 1,143 $ 5,151
================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage and other interest, net of
amounts capitalized $ 42,363 $ 32,798 $ 13,586
================================================================================================================
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
($000's omitted, except share and per
share amounts)
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION The Company is in the business of owning, acquiring,
managing, leasing, developing and redeveloping regional and super-regional
malls located throughout the United States. Substantially all of the
Company's assets and interests in investment properties (the "Properties")
are held by, and substantially all of its operations are conducted through
Urban Shopping Centers, L.P. (the "Operating Partnership").
As of December 31, 1998, the Company, which is the sole general
partner of the Operating Partnership, owns approximately 67% of the common
units ("Units") in the Operating Partnership; JMB Realty Corporation ("JMB
Realty") and certain of its affiliates ("JMB Partners") and certain other
parties own limited partnership interests in the Operating Partnership
representing approximately 33% of the Units and also own $28,000 of
preferred units (included in minority interest in the accompanying
consolidated balance sheets). The preferred units have a liquidation
preference of $27.50 per unit, a distribution rate of 7%, a redemption
price of $27.50 per unit and a conversion price of $27.50 per unit to
common units which in turn are convertible to common stock. After seven
years, the preferred units may be redeemed at the option of the Company for
cash or may be converted at the option of the holder into common units.
Each Unit may be exchanged for one share of common stock. In general, for
financial reporting purposes, the net profits and losses of the Operating
Partnership are allocated to the general and limited partners in accordance
with their percentage ownership. The Company operates as a real estate
investment trust ("REIT") for Federal income tax purposes.
Upon the issuance of common stock, unit voting common stock or Units
in the Operating Partnership, the excess book value is reallocated
proportionately between minority interest and stockholders' equity.
BASIS OF PRESENTATION The accompanying consolidated financial
statements include the accounts of the Company, the Operating Partnership
and all controlled affiliates. The effect of all significant intercompany
balances and transactions have been eliminated in the consolidated
presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INVESTMENT PROPERTIES
Investment properties are stated at cost less accumulated
depreciation. Depreciation is recorded using the straight-line method,
based on estimated useful lives of 3-40 years.
Maintenance and repair expenses are charged to operations as incurred.
Significant betterments and improvements are capitalized and depreciated
over their estimated useful lives.
Development costs, including interest and real estate taxes incurred
in connection with construction or expansion of certain investment
properties, are capitalized as a cost of the investment property and
depreciated over the estimated useful life of the related asset. During
1998, 1997 and 1996, the Company incurred interest of $47,495, $35,640 and
$17,643, respectively, and capitalized interest of $3,744, $1,764 and
$3,397, respectively.
The Company evaluates its investment properties periodically to assess
whether any impairment indications are present, including recurring
operating deficits and significant adverse changes in legal factors or
business climate that affect the recovery of recorded asset value. If any
investment property is considered impaired, a loss is provided to reduce
the carrying value of the property to its estimated fair value.
<PAGE>
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS Cash and cash
equivalents (which aggregated $294 and $1,143 at December 31, 1998 and
1997, respectively) include a treasury money market fund which invests
principally in U.S. Treasury notes and bills (none and $207 at December 31,
1998 and 1997, respectively). Other short-term investments (generally with
original maturities of one year or less) are generally held to maturity and
aggregated $128 and $125 at December 31, 1998 and 1997, respectively. Cash
equivalents and other short-term investments are recorded at cost which
approximates market.
DEFERRED EXPENSES Deferred mortgage loan fees and expenses (including
the cost of interest rate swap agreements related to specific mortgage
loans) are amortized on a straight-line basis over the terms of the related
mortgage notes or the terms of the interest rate swap agreements. Deferred
leasing commissions and concessions are amortized over the terms of the
related leases.
REVENUE RECOGNITION Although certain leases of the Company provide for
tenant occupancy during periods for which no rent is due and/or increases
exist in minimum lease payments over the term of the lease, the Company
generally accrues rental income for the full period of occupancy on a
straight-line basis. Accrued rents receivable relating to such leases of
$11,350 and $9,960 have been included in tenant receivables in the
accompanying consolidated balance sheets at December 31, 1998 and 1997,
respectively.
On May 21, 1998, the Emerging Issues Task Force of the Financial
Accounting Standards Board reached a consensus on Issue 98-9 "Accounting
for Contingent Rent in Interim Financial Periods." The Task Force
determined that a lessor should defer recognition of contingent rental
income (i.e., percentage/excess rent) in interim periods until the
specified target (i.e., breakpoint) that triggers the contingent rental
income is achieved. The Company implemented the consensus as of May 21,
1998.
This consensus affects timing of revenue recognition for interim
financial periods and it did not have any significant effect on the
Company's net income for the full calendar year 1998.
GENERAL AND ADMINISTRATIVE EXPENSES Certain general and administrative
expenses are allocated among the Company, the Operating Partnership and the
Management Company pursuant to a corporate services agreement among the
three parties.
DERIVATIVES The Company uses interest rate swap agreements as part of
its interest rate risk management strategy. These off-balance sheet
derivatives are classified as synthetic alterations. The criteria that must
be satisfied by synthetic alteration accounting are as follows: (i) the
liability to be converted has exposure to interest rate risk and (ii) the
derivative is designated and effective as a synthetic alteration of the
liability.
Accrual accounting is applied for these derivatives treated as
synthetic alterations, and income and expense are recorded as adjustments
of interest expense. Fees, if any, related to these off-balance sheet
investment products are amortized on the interest method over the life of
the derivative. If the balance of the liability falls below that of the
derivative, the excess portion of the derivative is marked to market and
the resulting gain or loss included in income, as applicable. If a
derivative is terminated independent of the underlying debt, the gain or
loss is deferred and amortized over the remaining life of the derivative.
Derivatives that do not satisfy the criteria above would be carried at
market value with changes in market value to be recognized as current
income or expense.
<PAGE>
The carrying value of the Company's interest rate swap agreements
(included in deferred expenses and other assets in the accompanying
consolidated balance sheets) is $2,030 and $2,378 as of December 31, 1998
and 1997, respectively. The fair value of the Company's interest rate swap
agreements is estimated at ($10,559) and $256 as of December 31, 1998 and
1997, respectively. The fair value is estimated based upon management's
good faith estimate.
FAIR VALUE OF FINANCIAL INSTRUMENTS Management believes that the
carrying amount of mortgage notes payable at December 31, 1998 and 1997,
approximates their fair value. Management believes its guarantees on
certain indebtedness will not require payments. Other financial instruments
are described under "Derivatives" above, or are either carried at amounts
which approximate their fair value or are not considered significant.
INCOME TAXES No provision has been made for Federal income taxes for
the Company in the accompanying consolidated financial statements because
the Company has operated as a REIT. Under the applicable provisions of the
Internal Revenue Code, a REIT will generally not be subject to Federal
income tax on that portion of its REIT taxable income it currently
distributes to its shareholders so long as it distributes at least 95% of
its taxable income to its shareholders and complies with certain other
requirements.
PER SHARE DATA The table below presents the dividend allocation for
tax purposes.
<PAGE>
1998 1997 1996
- ---------------------------------------------------------
Dividends declared and
paid per share $2.10 $2.03 $1.98
Ordinary income 99% 68% 78%
Return of capital -- 25% 11%
Long-term capital gain 1% 5% 11%
Unrecaptured section 1250 gain -- 2% --
The difference between basic and diluted weighted- average common and
unit voting common shares represents the dilutive effect of outstanding
stock options.
USE OF ESTIMATES The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
3. ACQUISITIONS
WOODLAND HILLS MALL On December 21, 1998, the Company acquired a 50%
equity interest in Woodland Hills Mall in a transaction valued at $40,620
paid through the issuance of 144,495 Units in the Operating Partnership
plus $34,924 in cash.
The issuance of Units has not been reflected in investing and
financing activities in the accompanying consolidated statement of cash
flows. The remaining interest was acquired by an unaffiliated third party.
Concurrent with this transaction, Woodland Hills Mall secured financing in
the amount of $90,000 which bears interest at a fixed rate of 7.00% and
matures on January 1, 2009.
FOX VALLEY CENTER AND HAWTHORN CENTER On November 14, 1997, the
Company acquired all of the ownership interests in partnerships owning Fox
Valley Center, Hawthorn Center and four peripheral outlet properties. The
aggregate purchase price for all six properties was approximately $260,000.
A portion of the acquisitions was financed by two non-recourse, fixed rate
secured loans aggregating approximately $163,000. The balance of the
acquisitions was funded through the Company's issuance on November 13, 1997
of $100,000 of Preferred Stock.
COPLEY PLACE On August 1, 1997, the Company acquired a one-third
equity interest in Copley Place from JMB Realty in a transaction valued at
$42,333 paid through the issuance of 1,282,828 Units in the Operating
Partnership. In connection with the transaction, JMB Realty also purchased
53,451 shares of unit voting common stock from the Company for $1,764 in
cash. The remaining interest in Copley Place is owned by an unaffiliated
third party. Concurrent with this transaction, Copley Place secured
financing in the amount of $195,000 which bears interest at a fixed rate of
7.44% and matures on August 1, 2007.
CITRUS PARK VENTURE On July 24, 1998, Citrus Park Venture, which owns
a 163-acre land parcel which is the site of Citrus Park Town Center, in
Tampa, Florida, was reorganized pursuant to Florida law as Citrus Park
Venture Limited Partnership ("Citrus Park"). Prior to November 17, 1998,
the Management Company owned a 50% economic interest in Citrus Park (and
prior to July 24, 1998, in its predecessor). On November 17, 1998, the
Management Company's interest in the partnership was liquidated through the
distribution of certain land parcels at Citrus Park thereby providing the
Company with 100% ownership of Citrus Park.
<PAGE>
The effect of consolidating the Company's interest in Citrus Park as
of November 17, 1998, has not been reflected in the accompanying
consolidated statement of cash flows. On August 1, 1997, the Company
acquired rights to the 50% economic interest associated with the Management
Company's ownership in the partnership from an affiliate of JMB Realty in
exchange for 243,513 Units in the Operating Partnership and 10,146 shares
of unit voting common stock, valued at $8,212 in aggregate. Such affiliate
of JMB Realty owns 100% of the common stock of the Management Company which
entitles it to 95% of the land sale proceeds. Also on August 1, 1997, the
Company exercised its option and purchased 68 acres of land adjacent to the
site for the regional mall from an affiliate of JMB Realty in exchange for
177,316 shares of common stock valued at $5,741. This land was transferred,
through sale and contribution, to Citrus Park Venture. This land will be
used for the development of a community center, The Plaza at Citrus Park
Town Center, and for other commercial uses.
SAN FRANCISCO SHOPPING CENTRE On June 17, 1997, the Company made an
investment in a partnership of approximately $31,400 in cash resulting in a
preferred 50% ownership interest in San Francisco Shopping Centre. The
transaction is structured so that the Company has the option, after
approximately eight years, to make an additional investment in the
partnership resulting in the Company owning substantially all of the
interests in San Francisco Shopping Centre. Concurrent with the investment,
a new loan of $73,600 was secured, of which $61,350 was funded at closing
with the balance of $12,250 to be funded in January 2000. The loan bears
effective interest including fees at LIBOR + 0.62% and matures on July 1,
2003; however, it may be extended for two one-year periods. On July 14,
1997, the partnership entered into an eight-year interest rate swap
agreement thereby fixing the interest rate at an all-in rate of 6.90%. In
October 1997, $7,819 was paid down on the outstanding balance of $61,350.
OLD ORCHARD CENTER On December 18, 1996, the Company acquired Old
Orchard Center for $78,577 in cash, prior to prorations, and the issuance
of $28,000 in preferred units in the Operating Partnership, subject to
$159,804 of existing indebtedness. In connection with the issuance of the
preferred units, the Company issued 44,424 shares of unit voting common
stock valued at $1,135. The cash portion of the acquisition price was
funded from the proceeds of the Company's public offering completed in
December 1996.
4. INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS
The accompanying consolidated financial statements include investments
in certain partnerships in which the Company does not own a controlling
interest. These investments are reported using the equity method. To the
extent the Company's investment basis differs from its share of the capital
of an unconsolidated partnership, such difference is amortized over the
depreciable lives of the unconsolidated partnership's investment assets.
Citrus Park Venture was an unconsolidated partnership through November 16,
1998.
Investments in unconsolidated partnerships consist of the following:
<PAGE>
<TABLE>
<CAPTION>
Name Property Ownership Interest
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Water Tower Joint Venture Water Tower Place, Chicago, IL 55%(1)
- -------------------------------------------------------------------------------------------------------------
Coral-CS/LTD Associates Coral Square Mall, Coral Springs, FL 50%
- -------------------------------------------------------------------------------------------------------------
West Dade County Associates Miami International Mall, Miami, FL 40%
- -------------------------------------------------------------------------------------------------------------
S.F. Shopping Centre Associates, L.P. San Francisco Shopping Centre, San Francisco, CA 50%
- -------------------------------------------------------------------------------------------------------------
Copley Place Associates, LLC Copley Place, Boston, MA 33%
- -------------------------------------------------------------------------------------------------------------
Valencia Town Center Associates, L.P Valencia Town Center, Valencia, CA 25%(2)
- -------------------------------------------------------------------------------------------------------------
Woodland Hills Mall, LLC Woodland Hills Mall, Tulsa, OK 50%
- -------------------------------------------------------------------------------------------------------------
<FN>
(1) The Company owns a 55% interest in a retail property (Water Tower Place)
through its investment in Water Tower Joint Venture ("WTJV"). All major
decisions concerning the retail property require the approval of both partners
of WTJV and thus the Company does not control WTJV.
(2) The outside partner has a right to all cash distributions until it has
received a return on and of its contributions to the partnership (as set forth
in the partnership agreement).
Summarized combined financial information for the unconsolidated partnerships
is presented below.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31
- ------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Investment properties, net $860,634 $738,757
Other assets 46,934 43,381
- ------------------------------------------------------------------------------------------------
907,568 782,138
- ------------------------------------------------------------------------------------------------
Less liabilities:
Mortgage notes payable 645,904 562,251
Other liabilities 30,045 29,617
- ------------------------------------------------------------------------------------------------
Total capital 231,619 190,270
Less outside partners' capital 139,460 111,135
- ------------------------------------------------------------------------------------------------
Total investments in unconsolidated partnerships $ 92,159 $ 79,135
================================================================================================
Total investments in unconsolidated partnerships are presented in the
accompanying consolidated balance sheets as follows:
Assets - Investments in unconsolidated partnerships $135,052 $118,800
Liabilities - Investments in unconsolidated partnerships 42,893 39,665
- ------------------------------------------------------------------------------------------------
$ 92,159 $ 79,135
================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Years ended December 31
- ----------------------------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Shopping centers $ 161,963 $ 115,583 $ 79,361
Interest income 1,258 609 385
Expenses:
Shopping centers 73,074 52,831 35,839
Mortgage and other interest and ground rent 43,536 32,673 25,375
Depreciation and amortization 18,136 16,331 11,107
- ----------------------------------------------------------------------------------------------
Income before other gains and extraordinary item 28,475 14,357 7,425
Other gains 1,457 -- --
- ----------------------------------------------------------------------------------------------
Income before extraordinary item 29,932 14,357 7,425
Extraordinary item -- (228) --
- ----------------------------------------------------------------------------------------------
Net income $ 29,932 $ 14,129 $ 7,425
==============================================================================================
Company's share of:
Mortgage and other interest and ground rent $ 19,250 $ 14,370 $ 10,810
Depreciation and amortization 9,737 6,957 4,519
Other gains 583 -- --
Income before extraordinary item 10,778 6,227 3,000
==============================================================================================
</TABLE>
<PAGE>
5. INVESTMENT IN THE MANAGEMENT COMPANY
Generally, the Company's preferred stock investment in the Management
Company entitles it to 95% of the distributions, profits and losses from
the management, leasing and development business (as defined) and 5% of the
net distributions, profits and losses from the land parcels (as defined).
The Company's consolidated financial statements present its investment in
the Management Company under the equity method of accounting.
Summarized financial information for the Management Company is
presented below.
<PAGE>
<TABLE>
<CAPTION>
December 31
- ----------------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
Assets:
Investments in land parcels (1) $ 15,171 $ 27,451
Cash, cash equivalents and short-term investments 4,324 1,805
Receivables and deferred expenses 17,332 16,097
- ----------------------------------------------------------------------------
$ 36,827 $ 45,353
============================================================================
Liabilities:
Notes payable (2) $ 20,000 $ 70,000
Accounts payable and other liabilities 4,777 5,652
- ----------------------------------------------------------------------------
24,777 75,652
Owners' equity (deficit) 12,050 (30,299)
- ----------------------------------------------------------------------------
$ 36,827 $ 45,353
============================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Years ended December 31
- ------------------------------------------------------------------------------------
<S> <C> <C>
1998 1997 1996
- ------------------------------------------------------------------------------------
Revenues $ 41,244 $ 36,891 $ 38,501
Expenses:
Management, leasing and development services 34,686 31,134 30,346
Mortgage and other interest 4,578 5,692 5,457
Land parcels 2,646 396 427
Depreciation and amortization 1,463 559 433
Write-down of assets (1) -- 8,812 --
- ------------------------------------------------------------------------------------
43,373 46,593 36,663
Operating income (loss) (2,129) (9,702) 1,838
Income tax benefit (provision) 629 561 (840)
Loss on sale of land (271) -- --
- ------------------------------------------------------------------------------------
Net income (loss) $ (1,771) $ (9,141) $ 998
====================================================================================
<FN>
(1) Included 50% of the outstanding mortgage loan of an affiliated joint venture at December 31, 1997. Write-downs
in 1997, represent reduction of the carrying value in an outstanding mortgage loan due to the uncertainty of
realizing the carrying value upon repayment.
(2) On December 1, 1998, the notes payable of the Management Company were reduced by $50,000. The reduction was
effected by (i) the Operating Partnership's $10,000 note of the Management Company being contributed to the
Management Company and the preferred shareholder (Penn Square Mall Limited Partnership) directly assuming from the
Management Company the payment obligation of $31,000 of its $51,000 of indebtedness and (ii) the Management
Company distributing in kind to its common shareholder assets valued at $6,700 in partial payment of $9,000 notes
payable to that shareholder and that shareholder contributing the balance of those notes held by it to the
Management Company. The $20,000 note payable bears interest at 7.54% per annum and matures on August 1, 2001.
</TABLE>
<PAGE>
The Management Company provides management, leasing and development
services to certain of the Company's consolidated and unconsolidated
investment properties, to affiliated entities and to third parties. In 1998
and 1997, management, leasing and development revenues of $6,412 and
$7,116, respectively, resulted from services provided to affiliated
entities. In addition, the Management Company received reimbursements (at
cost) of property level payroll and other operating expenses from
affiliated entities for activities performed on their behalf. Such
reimbursements were $18,978, $16,499 and $14,527 during 1998, 1997 and
1996, respectively. Rent expense, including building expenses, paid by the
Management Company to affiliates of JMB Realty in 1998, 1997 and 1996 was
$794, $762 and $822, respectively.
Prior to 1998, a lawsuit was filed against the Management Company and
other JMB Realty affiliates alleging a breach of agreements made prior to
the Company's formation with respect to a vacant land parcel which was
contributed by a JMB Realty affiliate to the Management Company as part of
the Company's formation. During 1998, the case was settled. The settlement
amount of $20,000 was paid and all legal fees and other costs in connection
with the litigation totaling approximately $2,600 were, or will be,
contributed to the Management Company by a JMB Realty affiliate.
As of December 31, 1998, the Company has an option to purchase one
remaining development parcel from the Management Company at the lower of
fair market value or 110% of allocable costs (all terms as defined) until
October 2000. In addition, the sale or development of this development
parcel by the Management Company is subject to a right of first offer in
favor of the Company on the same conditions as described above.
6. MORTGAGE NOTES PAYABLE
Mortgage notes payable consist of the following at December 31, 1998
and 1997:
<PAGE>
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Non-recourse mortgage loans payable, secured by certain investment properties
(1)(2)(3); bearing interest at rates ranging from 6.14% to 7.80%; with
maturities ranging from September 1999 through December 2009. Interest rates
associated with certain of the loans have been fixed through interest rate swap
agreements $628,678 $631,108
- ------------------------------------------------------------------------------------------------------
Line of credit, secured by Brandon TownCenter, The Plaza at Brandon TownCenter,
Bed Bath and Beyond outparcel at Brandon TownCenter, New York Square, Service
Merchandise Plaza and Bed Bath and Beyond outparcel at Wolfchase Galleria (4);
currently bearing interest at LIBOR + 0.85%(6.39%
at December 31, 1998); payable interest only through April 30, 2000 (maturity) 56,800 35,800
- ------------------------------------------------------------------------------------------------------
Unsecured line of credit (5); bearing interest at the Reference Rate -2.00%
(5.75% at December 31,1998); payable interest only through January 28, 2000
(maturity) 3,750 --
- ------------------------------------------------------------------------------------------------------
Construction loan payable, secured by Citrus Park Town Center (6); bearing
interest at LIBOR + 1.20%(6.41% at December 31, 1998); payable interest only
through August 7, 2001 (maturity) 45,273 --
- ------------------------------------------------------------------------------------------------------
Non-recourse mortgage loan payable, secured by the Management Company's interest
in certain management contracts and a guarantee by Penn Square Mall Limited
Partnership (7); bearing interest at 7.54%; payable interest only through
August 1, 2001 (maturity) 31,000 --
- ------------------------------------------------------------------------------------------------------
$765,501 $666,908
======================================================================================================
<PAGE>
<FN>
(1) On December 11, 1997, the Company refinanced its outstanding indebtedness secured by Old Orchard Center. In
connection with the refinancing, the Company incurred prepayment penalties of $5,404, net of minority interest,
which is reflected as an extraordinary item in the accompanying consolidated statement of operations for the year
ended December 31, 1997.
(2) On November 3, 1997, the Company refinanced its outstanding indebtedness secured by Oakbrook Center. In
connection with the refinancing, the Company sold its interest rate swap agreements and wrote-off the unamortized
balance of deferred financing costs for a net loss of $26, net of minority interest, which is reflected as an
extraordinary item in the accompanying consolidated statement of operations for the year ended December 31, 1997.
(3) On June 30, 1997, the Company refinanced its outstanding indebtedness secured by Wolfchase Galleria. In
connection with the refinancing, the Company wrote-off the unamortized balance of deferred financing costs of
$203, net of minority interest, which is reflected as an extraordinary item in the accompanying consolidated
statement of operations for the year ended December 31, 1997.
(4) On July 26, 1995, the Company signed an agreement with a group of lenders for the establishment of a $90,000
secured, revolving line of credit (the "Line"), which on November 25, 1998 was amended to increase the line to
$107,500. The Line is an obligation of the Operating Partnership and is guaranteed by the Company. The Line has an
initial three-year term and, subject to lenders' approval, may be extended for an additional one or two-year
period.
(5) On November 6, 1996, the Company entered into an agreement with a lender for a one- year $5,000 unsecured
revolving line of credit, which on January 30, 1998 was amended to increase the line to $7,500 and extend the
maturity to January 29, 1999. Subsequent to year-end, this line was further amended to increase the line to
$10,000, extend the maturity to January 28, 2000 and change the interest rate to the Reference Rate -1.5625%.
(6) On August 8, 1998, the Company executed a loan agreement with a lender to finance $86,100 of the remaining
construction costs at Citrus Park Town Center. This loan matures on August 7, 2000; however, it may be extended
for three one-year periods.
(7) On December 1, 1998, the Company assumed payment obligation of $31,000 of the Management Company's $51,000 of
indebtedness. Such amount has not been reflected in investing and financing activities in the accompanying
consolidated statement of cash flows.
</TABLE>
<PAGE>
Maturities of long-term debt for the five years 1999 through 2003
are $86,363, $104,881, $34,018, $3,243 and $3,485, respectively.
As of December 31, 1998, interest rate swap agreements in the
aggregate amount of $323,500 are in place to hedge exposure to interest
rates on the Company's floating rate indebtedness. These interest rate swap
agreements have fixed interest rates ranging from 5.68% to 6.29% and have
maturities ranging from December 14, 2000 to December 1, 2005. The Company
is exposed to credit loss in the event of non-performance by the third
parties to the interest rate swap agreements (which $175,000 are AA+,
$120,000 are AA- and $28,500 are A
7. LEASES
AS PROPERTY LESSOR At December 31, 1998, the Company's principal
consolidated assets are twelve operating shopping center properties.
Management has determined that all leases relating to these properties are
properly classified as operating leases; therefore, rental income is
reported when earned. Leases with tenants range in term from one to 66
years and generally provide for fixed minimum rents and reimbursement of
operating costs. In addition, leases with shopping center tenants provide
for additional rent based upon percentages of tenant sales volumes.
Minimum lease payments to be received in the years 1999 to 2003,
and thereafter, under the above lease agreements are $117,956, $113,794,
$108,448, $103,465, $95,790 and $333,877 respectively.
AS PROPERTY LESSEE Oak Brook Urban Venture (a consolidated venture) is
subject to a ground lease that expires in December 2040 but may be extended
through December 2089. The Oakbrook ground lease produced land
sale-leaseback proceeds of $75,000. Ground rent on the Oakbrook ground
lease is 5% annually ($3,750), although to the extent net cash flow is not
sufficient to service the annual ground rent, such amount is deferred
subject to a minimum annual payment of $1,400, escalating to $1,800 in the
year 2000.
In each of the years 1998, 1997 and 1996, Oak Brook Urban Venture
reported rent expense of $3,750 of which payment of $2,150 was deferred in
1998 and $2,350 was deferred in 1997 and 1996. Interest has been accrued
and deferred of $1,143, $982 and $823 for 1998, 1997 and 1996,
respectively, on the deferred balance. The total deferred interest and
ground lease rent obligation included in the accompanying consolidated
balance sheet at December 31, 1998 is $24,984. Payments of amounts in
excess of the minimum annual payment is contingent upon availability of
defined cash flow in future periods. The Oakbrook ground lease is
subordinate in right of payment to all existing mortgage loans and
partnership advances (including advances owed to the Company), except for
the minimum annual payment, which is senior to the partnership advances.
Upon sale of the property, the ground lessor is entitled to a 10%
cumulative return on its invested capital to the extent sale proceeds are
available to satisfy such return. The ground lessor has the option,
commencing in year 2010 (2007 under certain circumstances) to put the
property to the Company for cash or, at the Company's option, Units or
shares of common stock, at a price based, in general, upon rent for the
twelve calendar month period preceding the exercise of the put.
A substantial portion of Penn Square Mall is on land subject to a
ground lease expiring in 2060. The lease currently provides for minimum
rent equal to the greater of: (i) annual rents of $607, subject to
adjustment based on the Consumer Price Index every fifth lease year with
the next adjustment in 2001, or (ii) 3/8 % of the gross annual retail
sales, plus 4 5/8% of the gross annual rents from non-retail tenants of
Penn Square Mall.
<PAGE>
8. TRANSACTIONS WITH AFFILIATES (not disclosed elsewhere)
Costs and expenses for services provided by the Management Company and
the Operating Partnership to the Company's investment properties, including
the Company's share of unconsolidated investment properties, were as
follows:
<PAGE>
<TABLE>
<CAPTION>
Years ended December 31
- --------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Property management and
leasing services (1) $7,635 $5,770 $4,169
Development services 2,125 1,365 1,212
- -------------------------------------------------------------------------------
$9,760 $7,135 $5,381
===============================================================================
<FN>
(1) Management services of $1,656 and $1,415 for the years ended December 31, 1997 and 1996, respectively, provided by
the Operating Partnership to Brandon TownCenter, The Plaza at Brandon TownCenter, MainPlace, New York Square, Old
Orchard Center, Penn Square Mall, Service Merchandise Plaza and Wolfchase Galleria, and included above, have been
eliminated in consolidation. On January 1, 1998, these management contracts were terminated and new management
contracts were entered into with the Management Company.
</TABLE>
<PAGE>
The Company has purchase options, until October 2000, with respect
to interests in certain improved retail properties in which JMB Partners
has an interest. In addition, these interests may not be sold by JMB
Partners without first offering such interests to the Company at the lower
of the option price or the then fair market value of such property.
9. OPTIONS AND EMPLOYEE BENEFIT PLANS
OPTION PLAN In 1993, the Company adopted a stock option plan (the
"Option Plan") which provides for the granting of options to directors,
officers and key employees of the Company and the Management Company to
purchase a specified number of shares of common stock or Units ("Options").
Under the Option Plan, the total number of shares of common stock available
to be issued upon exchange of Units issued under the Option Plan is equal
to 1,500,000. The Options are granted at the market value on the day of the
grant.
At December 31, 1998, there were 266,401 additional shares
available for grant under the Option Plan. No significant options were
granted in 1998, 1997 or 1996.
The Company has elected to continue to apply the provisions of APB
Opinion No. 25 in accounting for its Option Plan and, accordingly, no
compensation cost has been recognized for its Options in the consolidated
financial statements. Had the Company determined compensation cost based
upon the fair value at the grant date for these Options under SFAS No. 123,
the effects on the Company's net income and net income per share would not
have been material.
Stock option activity during the periods indicated was as follows:
Weighted-
Average
Number Number Exercise
of Shares of Units Price
- -------------------------------------------------------------------
Balances at December 31, 1995 56,875 992,125 22.6929
Granted 12,260 161,240 20.4071
Exercised -- (71,653) 23.1303
Canceled -- (18,834) 21.9181
- -------------------------------------------------------------------
Balances at December 31, 1996 69,135 1,062,878 22.3277
Granted 7,500 -- 30.1250
Exercised -- (211,838) 22.9130
Canceled -- (67) 20.7500
- -------------------------------------------------------------------
Balances at December 31, 1997 76,635 850,973 22.2572
Granted 10,350 12,150 34.2292
Exercised (16,000) (69,573) 21.9273
Canceled -- -- --
- -------------------------------------------------------------------
Balances at December 31, 1998 70,985 793,550 22.6015
===================================================================
At December 31, 1998, the range of exercise prices and
weighted-average remaining contractual life of outstanding Options was
$20.3125-$34.8125 and 5.72 years, respectively.
At December 31, 1998 and 1997, the number of Options exercisable
was 786,703 and 714,772 respectively, and the weighted-average exercise
price of these Options was $22.4299 and $22.6754, respectively.
1996 INCENTIVE UNIT PROGRAM On May 6, 1997, the Shareholders approved the
Company's 1996 Incentive Unit Program (the "Program") which provides for
the award of up to 525,000 Incentive Units to officers and key employees of
the Company and the Management Company. Incentive Units may be earned 25%
in each of the calendar years 1996 through 1999 subject to the Company
achieving annual and cumulative performance targets in its funds available
for distribution for each year. The determination of whether the
performance target for any year has been achieved is to be made not later
than March 31 of the following year (the "Determination Date"). Awards are
subject to vesting over a three-year period commencing on the first day of
the calendar year subsequent to the year in which the Incentive Units were
earned, provided that the participant remains in the employ of the Company
or its affiliates on each such vesting date. Awards for 525,000 Incentive
Units were granted in 1996. In each of years 1998 and 1997, participants
under the Program earned awards of 130,750 Incentive Units. The Company
recognizes deferred compensation expense for earned awards as of each
year's Determination Date. Such amounts are amortized to expense over the
related vesting periods. Compensation expense for this plan for 1998 and
1997 was $2,946 and $1,260, respectively, which is inclusive of the
Company's share of the Management Company.
SAVINGS AND RETIREMENT PLANS The Company and the Management Company
participate in the JMB Realty Corporation Employee Savings Plan and the
Core Retirement Award Program. In 1998, 1997 and 1996, the Company and the
Management Company contributed in aggregate $98, $96 and $107,
respectively, to the JMB Realty Corporation Employee Savings Plan, and
$544, $511 and $515, respectively, to the Core Retirement Award Program. On
August 1, 1998, the Company implemented the Deferred Cash Compensation Plan
(the "Plan"). This Plan replaces the JMB Realty Corporation Employee
Savings Plan for highly compensated employees of the Company and the
Management Company. This plan is not qualified under section 401(a) of the
Internal Revenue Code of 1986. In 1998, the Company and the Management
Company contributed in the aggregate $24 to this Plan.
10. DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
During 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company defines
each of its regional malls and community centers as an individual operating
segment and has determined that all of the regional malls and community
centers exhibit substantially identical economic characteristics and meet
the other criteria specified by SFAS No. 131 which permits the malls to be
aggregated into one reportable segment. The Management Company is viewed by
management as a separate segment and does not meet the quantitative
measures required for separate disclosure.
The Company separately assesses and measures the operating results of
its regional malls based on net operating income ("NOI"). NOI is calculated
as shopping center revenues less shopping center expenses adjusted for
straight-line rent and non-real estate depreciation. NOI for the Company's
unconsolidated partnerships is measured at the Company's ownership share.
The following table summarizes the revenues, NOI and assets for the
Company's reportable segment.
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Shopping center revenues $ 267,142 $ 203,118 $ 128,712
Company's share of unconsolidated partnerships (69,556) (50,758) (33,532)
Interest income 1,103 1,620 1,864
- ---------------------------------------------------------------------------------------------------
Consolidated revenue $ 198,689 $ 153,980 $ 97,044
===================================================================================================
NOI:
Shopping center NOI $ 161,991 $ 125,915 $ 81,529
Unconsolidated shopping center NOI (38,722) (27,180) (17,972)
Interest income 1,103 1,620 1,864
Straight-line rent adjustments 1,369 1,136 504
Real estate depreciation and amortization (39,512) (31,435) (19,232)
Non-shopping center expenses (54,903) (44,054) (23,433)
Income from unconsolidated partnerships and the
Management Company 11,042 5,789 4,070
- ---------------------------------------------------------------------------------------------------
Consolidated income before gains, minority interest and
extraordinary items $ 42,368 $ 31,791 $ 27,330
===================================================================================================
ASSETS:
Total shopping center assets $ 1,362,436 $ 1,264,650 $ 883,243
Investment in Management Company 48,552 15,058 15,557
Cash 422 1,268 5,276
- ---------------------------------------------------------------------------------------------------
Consolidated assets $ 1,411,410 $ 1,280,976 $ 904,076
===================================================================================================
<FN>
Information relative to the Company's expenditures for additions to long-lived
assets has been included in the investing activities reported in the
consolidated statements of cash flows.
</TABLE>
<PAGE>
11. CONTINGENCIES
LITIGATION The Company and its unconsolidated partnership investments
and the Management Company are parties to a variety of legal proceedings
arising in the ordinary course of their business. It is management's
opinion that the ultimate resolution of these matters will not have a
material adverse impact on the financial condition, results of operations
or liquidity of the Company.
12. SUBSEQUENT EVENTS
On January 11, 1999, Water Tower Joint Venture extended the maturity
on its $170,000 of indebtedness to February 1, 2000.
On January 14, 1999, S. F. Shopping Centre Associates, L.P. extended
the maturity on its $53,531 of indebtedness to July 1, 2003. On January 29,
1999, the Company's unsecured line of credit was amended to increase the
line to $10,000, extend the maturity to January 28, 2000 and change the
interest rate to the Reference Rate -1.5625%.
On February 25, 1999, the interest rate on the Citrus Park Town Center
construction loan was reduced to LIBOR + 1.05%.
On February 25, 1999, the Company secured $75,000 in financing for
Penn Square Mall. The loan bears interest at a fixed rate of 7.025% and
matures on March 1, 2009.
On February 25, 1999, the Management Company obtained a $20,000 loan.
The loan bears interest at a floating rate of LIBOR + 1.20% and matures on
February 25, 2004.
On March 1, 1999, Penn Square Mall and the Management Company prepaid
their indebtedness of $31,000 and $20,000, respectively. The indebtedness
had a scheduled maturity date of August 1, 2001. The Management Company
incurred a penalty of $1,973 due to this prepayment of debt.
<PAGE>
Independent Auditors' Report
THE BOARD OF DIRECTORS AND SHAREHOLDERS
URBAN SHOPPING CENTERS, INC.:
We have audited the accompanying consolidated balance sheets of Urban
Shopping Centers, Inc. and consolidated partnerships (the Company) as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the years in
the three-year period ended December 31, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
the Company as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Chicago, Illinois
February 5, 1999, except as to note 12,
which is as of March 1, 1999
<PAGE>
<TABLE>
Selected Financial Data
(Unaudited)
<CAPTION>
($000's omitted, except per share amounts) Years ended December 31
- ----------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA: (1)
Total revenues $ 198,689 $ 153,980 $ 97,044 $ 91,627 $ 75,783
Income before other gains,
minority interest and extraordinary items 42,368 31,791 27,330 24,099 24,350
Income before extraordinary items 22,948 22,093 19,969 18,644 17,978
=================================================================================================================
Basic income per common and unit voting common
share before extraordinary items 1.29 1.27 1.42 1.35 1.31
Diluted income per common and unit voting common
share before extraordinary items 1.27 1.27 1.42 1.35 1.30
Dividends declared and paid per common and unit
voting common share 2.10 2.03 1.98 1.94 1.82
=================================================================================================================
($000's omitted) December 31
- -----------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA: (1)
Total assets $1,411,410 $1,280,976 $ 904,076 $ 598,597 $ 586,638
Mortgage notes payable and land
sale-leaseback proceeds 840,501 741,908 514,886 326,000 305,745
Stockholders' equity 326,274 309,656 194,663 134,509 142,558
=================================================================================================================
<FN>
(1) This information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations." Included in income before extraordinary items, are (i) a $479 gain on sale of an outparcel
at Wolfchase Galleria in 1998, (ii) a $1,821 gain on sale of an outparcel at Wolfchase Galleria in 1997, (iii) a
$1,852 gain on sale of the Burdines store at Brandon TownCenter in 1997, (iv) a $3,372 gain on sale of four outparcels
at Wolfchase Galleria in 1996, (v) a $4,496 gain on sale of two Company purchase options in 1995 and (vi) a $2,989
gain on sale of outparcels at the Brandon project in 1994.
</TABLE>
<PAGE>
<TABLE>
Quarterly Financial Summary
(Unaudited)
($000's omitted, except per share amounts) 1998 QUARTERS 1997 QUARTERS
- ----------------------------------------------------------------------------------------------------------------------
First Second Third Fourth First Second Third Fourth
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues $46,908 $ 47,872 $ 48,875 $ 55,034 $ 33,718 $ 37,356 $ 37,864 $ 45,042
Income before
extraordinary
items 4,540 6,915(1) 6,683 11,169 3,822 6,722(3) 5,390(5) 6,971
Net income 4,540 6,915(1) 6,683 11,169 3,734(2) 6,515(3)(4) 5,393(5) 1,544(6)
=====================================================================================================================
Basic income
per common
and unit
voting common
share 0.16 0.30 0.29 0.54 0.22 0.38 0.31 0.04
Diluted income
per common
and unit voting
common share 0.16 0.30 0.29 0.53 0.22 0.37 0.31 0.04
====================================================================================================================
Dividends
declared
and paid 0.5250 0.5250 0.5250 0.5250 0.5075 0.5075 0.5075 0.5075
=====================================================================================================================
Common stock
price:
High $36 $ 34 1/4 $34 3/16 $ 33 7/16 $ 34 1/2 $ 31 15/16 $ 32 1/4 35 1/8
Low 32 1/8 31 1/2 30 1/8 30 7/8 28 1/2 27 7/8 30 1/16 30 1/8
=====================================================================================================================
<FN>
(1) Includes the Company's share of gain on sale of an outparcel at Wolfchase Galleria, net of minority interest, of
$322.
(2) Includes the Company's share of extraordinary item, net of minority interest, of $88 related to the write-off of
unamortized loan costs at Water Tower Place.
(3) Includes the Company's share of gain on sale of an outparcel at Wolfchase Galleria, net of minority interest, of
$1,287.
(4) Includes the Company's share of extraordinary item, net of minority interest, of $207 relative to the write-off of
unamortized construction loan costs at Wolfchase Galleria.
(5) Includes the Company's share of gain on sale of the Burdines store at Brandon TownCenter, net of minority
interest, of $1,264.
(6) Includes the Company's share of extraordinary items, net of minority interest, of $5,254 and $25, respectively,
related to the prepayment penalties incurred in connection with the refinancing of the Old Orchard Center indebtedness
and the net loss related to the write-off of unamortized loan costs, partially offset by the gain on sale of interest
rate swaps as a result of the Oakbrook Center refinancing.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Board of Directors Officers
<S> <C> <C>
NEIL G. BLUHM(3) JOHN E. NEAL (2) MATTHEW S. DOMINSKI
Co-Chairman of the Head - Commercial Real Estate President and Chief Executive Officer
Board of Directors Bank One
ADAM S. METZ
JUDD D. MALKIN(2) PHILLIP B. ROONEY(3) Executive Vice President,
Co-Chairman of the Vice Chairman Chief Financial Officer, Treasurer
Board of Directors The ServiceMaster Company and Director of Acquisitions
JAMES B. DIGNEY(1) JOHN G. SCHREIBER(1) JAMES L. CZECH
Senior Vice President President - Schreiber Investments Executive Vice President;
Metropolitan Life and Partner - Blackstone Real Estate Advisors President - Development, Urban Retail
Insurance Company Properties Co.; and President, Urban
Retail International LLC
MATTHEW S. DOMINSKI(3) HENRY T. SEGERSTROM(1,2) DENNIS M. ZASLAVSKY
President and Chief Executive Managing Partner - C.J. Segerstrom & Sons Executive Vice President
Officer, Urban Shopping and Chief Operating Officer
Centers, Inc.
MICHAEL G. HILBORN
SUSAN GETZENDANNER(2) Senior Vice President,
Partner - Skadden, (1) Audit Committee Member General Counsel and Secretary
Arps, Slate,
Meagher & Flom (Illinois) (2) Executive Compensation Committee Member
(3) Nominating Committee Member MICHAEL A. GOLDBERG
Senior Vice President
</TABLE>
<PAGE>
Shareholder Information
ANNUAL MEETING The 1999 Annual Meeting of Shareholders will be held at
10:00 a.m. local time on Wednesday, May 5, 1999 at: Citrus Park Town Center
8021 Citrus Park Town Center Mall Tampa, Florida
SHARE INFORMATION In 1998, shares of Urban Shopping Centers traded at a
high of $36 and a low of $30 1/8. Urban Shopping Centers is listed on The
New York Stock Exchange and The Chicago Stock Exchange (Symbol: URB). As of
February 3, 1999, there were 17,880,469 shares outstanding held by 550
shareholders of record.
DIVIDEND Urban Shopping Centers most recently declared a quarterly cash
dividend of 56 cents per share on February 9, 1999. The dividend equates to
an annual dividend of $2.24. The dividend was paid on March 5, 1999 to
shareholders of record on February 19, 1999. Of the total dividends paid in
1998, 99.14% was ordinary income, and 0.86% was long-term capital gain.
Transfer Agent
First Chicago Trust Company,
A Division of EquiServe
P. O. Box 2500
Jersey City, New Jersey 07303
Phone: (800) 446-2617
DIVIDEND REINVESTMENT PLAN Registered shareholders are eligible to reinvest
their dividends through the company's authorized DirectSERVICE Program with
all applicable brokerage commissions and transaction fees paid by Urban
Shopping Centers. The DirectSERVICE Program also allows both existing and
new shareholders to purchase shares through voluntary cash payments. For
information on this program, please contact: First Chicago Trust Company at
1-800-446-2617 (for registered shareholders) or 1-800-992-4566 (for
non-registered shareholders).
FOR ADDITIONAL INFORMATION
Urban Shopping Centers, Inc.
c/o Investor Relations
900 N. Michigan Avenue, Suite 1500
Chicago, Illinois 60611
Phone: (312) 915-2000
Facsimile: (312) 915-2001
<PAGE>
<TABLE>
Urban Retail Properties Co.
<CAPTION>
MANAGEMENT DEVELOPMENT
<S> <C> <C> <C>
JOSEPH M. SHRADER KIMBERLY A. POHLEN MICHAEL S. LEVIN PATRICK R. DUNNE
President Senior Vice President Executive Vice President Vice President
CHARLES J. GILL DANIEL J. POLLARD OSCAR REID THOMAS R. FIELD
Executive Vice President Senior Vice President Executive Vice President Vice President
and Regional Manager
WENDY J. SILVERMAN ROHAN S. ANDREW JOHN R. HOUREN
DAVID S. KATTAR Senior Vice President Senior Vice President Vice President
Executive Vice President
and Regional ManageR STEVEN M. WEISS JAMES J. FARRELL JOSEPH S. MCCARTHY,
JR.
Senior Vice President Senior Vice President Vice President
ROBERT D. OLIVER
Executive Vice President LISA J. BALIS MARK A. FLOM PAUL J. OLIMPIO
and Regional Manager Vice President Senior Vice President Vice President
TIMOTHY W. OLSON ARNOLD D. BLAKE RICHARD J. KOBE KAREN RUTHMAN
Executive Vice President Vice President Senior Vice President Vice President
and Regional Manager
PAMELA S. BORDNER ROBERT W. LENKE CHARLES E. SCHULZE
ROBERT W. POWELL, JR. Vice President Senior Vice President Vice President
Executive Vice President
and Regional Manager DANNA L. DIAMOND W. WAYNE LITZAU KATHY A. SENTEN
Vice President Senior Vice President Vice President
MARY L. SCHLACHTER
Executive Vice President PAUL E. GEDDIS CHARLES C. PORTER MINDY W. SHERMAN
and Regional Manager Vice President Senior Vice President Vice President
PALMER W. CAMERON STEVE A. GREENWOOD JAN C. PORTER GAIL M. SILVER
Senior Vice President and Vice President Senior Vice President Vice President
Director of Technical Services
JUDITH J. JACOBS ADRIAN A. HOGG HAROLD J. WAGNER
Vice President Vice President Vice President
LEASING NANCY L. JONES THOMAS D. HOWES
Vice President Vice President
ROSS B. GLICKMAN MARKETING
President JEANNE A. MORRISON ROBERT MCHALE
Vice President Vice President CYNTHIA S. BOHDE
JOHN F. BERGH
Senior Vice President
Executive Vice President PAUL MOTTA JOHN C. PARAPETTI
Vice President Vice President LISA A. BELL
SUSAN CADIEUX-SMITH Vice President
Executive Vice President J. MICHAEL NAGY VICTOR H. PILDES
Vice President Vice President EVAN C. GEROUX, JR.
R. WEBBER HUDSON Vice President
Executive Vice President STEWART T. WALLER
Vice President CONSTANCE HOLLENBERG
MAX S. REISWERG CORPORATE Vice President
Executive Vice President LYNN S. WARREN
Vice President AVRUM R. MILLER J. CHARLENE SLACK
STEVEN B. WARSAW Executive Vice President Vice President
Executive Vice President ANDREA WEISBERG
Vice President LEN W. TOBIASKI
FRED M. HEICHMAN Executive Vice President/
Senior Vice President MARK A. WILLIAMSON Controller TENANT COORDINATION
Vice President
MICHAEL T. LAING MARTHA J. SPATZ
LISA LASOTA-POOLE Senior Vice President Senior Vice President
Senior Vice President
LEASE ADMINISTRATION MARK BROWN PETER V. IRIE
MICHAEL A. LAW Vice President/ Vice President
Senior Vice President Chief Information Officer
LA BONNEY TAYLOR CHRISTOPHER M. WEST
Vice President SHERRY K. COOPER Vice President
DOYLE P. LIESENFELT Vice President
Senior Vice President
</TABLE>
EXHIBIT 21.1
- ------------
Name of Subsidiary Jurisdiction
- ------------------ ------------
Urban Shopping Centers, L.P. Illinois
A. Brandon Convenience Center Partners, Ltd. Florida
B. Brandon Land Partners, Ltd. Florida
C. Brandon Shopping Center Partners, Ltd. Florida
D. CS Partners, Ltd. Florida
1. Coral-CS/LTD Associates Florida
E. West Dade County Associates Florida
F. Citrus Park Venture Limited Partnership Florida
G. Oak Brook Urban Venture, L.P. Illinois
H. Penn Square Mall Limited Partnership Illinois
I. Santa Ana Venture California
J. Sawmill Place Plaza Limited Partnership Ohio
1. Sawmill Place Plaza Associates Ohio
K. Valencia Town Center Associates, L.P. California
L. Water Tower Joint Venture Illinois
M. Wolfchase Galleria Limited Partnership Tennessee
N. Old Orchard Urban Venture, L.P. Illinois
O. Urban Deer Park LLC Delaware
P. Urban Roseville LLC Delaware
Q. S.F. Shopping Centre Associates, L.P. California
R. Fox Valley Mall, LLC Delaware
S. Hawthorn, L.P. Illinois
T. Hawthorn Theatre, LLC Delaware
U. Copley Place Associates, LLC Delaware
V. Woodland Hills Mall, LLC Delaware
W. Southpoint Mall, LLC Delaware
Coral-CS/LTD Associates Florida
A. CS Partners, Ltd. Florida
Sawmill Place Plaza Limited Partnership Ohio
A. Sawmill Place Plaza Associates Ohio
Urban Retail Properties Co. Delaware
A. Urban Retail Properties Co. of Illinois Delaware
B. Urban Retail Properties Co. of Iowa, Inc. Delaware
C. Urban Retail Properties Co. of Ohio, Inc. Delaware
D. Urban Retail International LLC Delaware
E. Urban Retail Properties Co. of Oregon, Inc. Delaware
F. Urban Retail Properties Co. of Washington, Inc. Delaware
USC Citrus, Inc. Illinois
A. Citrus Park Venture Limited Partnership Florida
B. NWRM Limited Partnership Delaware
USC Brandon, Inc. Delaware
A. Brandon Convenience Center Partners, Ltd. Florida
B. Brandon Land Partners, Ltd. Florida
USC MainPlace, Inc. Delaware
A. Santa Ana Venture California
USC Penn Square, Inc. Delaware
A. Penn Square Mall Limited Partnership Illinois
USC Memphis, Inc. Delaware
A. Wolfchase Galleria Limited Partnership Delaware
USC Oakbrook, Inc. Delaware
A. Oak Brook Urban Venture, L.P. Illinois
USC Richmond, Inc. Delaware
USC Subsidiary, Inc. Delaware
A. Brandon Shopping Center Partners, Ltd. Florida
USC Old Orchard, Inc. Delaware
A. Old Orchard Urban Venture, L.P. Illinois
Urban Deer Park LLC Delaware
Urban Roseville LLC Delaware
<PAGE>
Name of Subsidiary Jurisdiction
- ------------------ ------------
USC Fox Valley, Inc. Delaware
A. Fox Valley Mall, LLC Delaware
USC Hawthorn, Inc. Delaware
A. Hawthorn, L.P. Illinois
USC San Francisco, Inc. Delaware
A. S.F. Shopping Centre Associates, L.P. California
USC Woodland, Inc. Delaware
A. Woodland Hills Mall, LLC Delaware
Hawthorn Theatre LLC Delaware
Exhibit 23.1
- ------------
Consent of Independent Auditors
-------------------------------
The Board of Directors
Urban Shopping Centers, Inc.:
We consent to incorporation by reference in the registration statements No.
333-35909 (Form S-8), No. 33-86778 (Form S-8), No. 33-96388 (Form S-8), No.
333-00334 (Form S-3), No. 333-35911 (Form S-3) and No. 333-63509 (Form S-3)
of Urban Shopping Centers, Inc. of our report dated February 5, 1999,
except as to note 12, which is as of March 1, 1999, relating to the
consolidated balance sheets of Urban Shopping Centers, Inc. and
consolidated partnerships as of December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows
and our report dated February 5, 1999 related to the financial statement
schedule for each of the years in the three-year period ended December 31,
1998, which reports appear in or are incorporated by reference in the
annual report on Form 10-K of Urban Shopping Centers, Inc. for the year
ended December 31, 1998.
KPMG LLP
Chicago, Illinois
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
INCLUDED IN SUCH REPORT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 422
<SECURITIES> 0
<RECEIVABLES> 16,143
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,565
<PP&E> 1,357,729
<DEPRECIATION> (163,845)
<TOTAL-ASSETS> 1,411,410
<CURRENT-LIABILITIES> 51,270
<BONDS> 765,501
<COMMON> 174
0
0
<OTHER-SE> 326,100
<TOTAL-LIABILITY-AND-EQUITY> 1,411,410
<SALES> 197,586
<TOTAL-REVENUES> 198,689
<CGS> 0
<TOTAL-COSTS> 114,001
<OTHER-EXPENSES> 9,611
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,751
<INCOME-PRETAX> 31,326
<INCOME-TAX> 0
<INCOME-CONTINUING> 29,307
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,307
<EPS-PRIMARY> 1.29
<EPS-DILUTED> 1.27
</TABLE>
